1. What is Real Estate Basis?

The basis of real estate represents the total investment in a property for tax purposes. It includes the original purchase price plus any capital improvements made to the property over time.

2. How Does the Calculator Work?

The calculator uses the basis formula:

Where:

• \( PP \) — Purchase Price ($)
• \( Imp \) — Improvements ($)

Explanation: The basis calculation accounts for both the initial acquisition cost and any subsequent capital improvements that increase the property's value.

3. Importance of Basis Calculation

Details: Accurate basis calculation is crucial for determining capital gains taxes when selling property, calculating depreciation for rental properties, and establishing the property's value for estate planning purposes.

4. Using the Calculator

Tips: Enter the purchase price and improvements amount in dollars. Both values must be non-negative numbers. The calculator will sum these values to determine the total basis.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements are permanent additions or renovations that increase property value, prolong its useful life, or adapt it to new uses (e.g., room additions, roof replacement, kitchen remodel).

Q2: Are repairs considered improvements?
A: Routine repairs and maintenance are not considered capital improvements unless they substantially prolong the property's life or increase its value.

Q3: How does basis affect capital gains?
A: When selling property, your taxable gain is calculated as Sale Price minus Basis minus Selling Expenses. A higher basis results in lower taxable gain.

Q4: Can basis be adjusted after purchase?
A: Yes, basis can be increased by capital improvements and decreased by depreciation (for rental properties) or casualty losses.

Q5: Should I keep records of improvements?
A: Yes, maintain detailed records of all improvement costs, including receipts and documentation, as they may be needed for tax purposes when selling the property.