Finance category
Mortgage, loan, investing, tax, and money calculators.
Cost Basis Calculator
Build the adjusted cost basis used to compute capital gains on a property sale: purchase price + closing costs + capital improvements − depreciation − casualty losses.
title, recording, transfer tax
additions, renovations, new mechanicals
Adjusted cost basis
$377,500
used in capital gain calculation
Original basis
$339,500
purchase + closing costs
Basis additions
+$38,000
capital improvements
Basis reductions
−$0
depreciation + casualty losses
What counts as a capital improvement
Anything that adds to the property's value or extends its useful life: additions, renovations, new HVAC, new roof, new water heater, new flooring, energy upgrades. Repairs and maintenance (painting, fixing leaks, replacing broken fixtures) don't add to basis.
Keep receipts and photos for every capital improvement. The IRS expects you to substantiate basis when you sell. Lost records mean lost basis, which translates directly into more capital gain and more tax.
How to Use
- Enter the original purchase price.
- Enter purchase-side closing costs (title, recording, transfer tax — anything that's not refundable like prepaid insurance).
- Add up capital improvements made over your ownership.
- If the property was a rental for any period, enter total depreciation taken.
- Add any casualty loss deductions you previously claimed.
- Read the adjusted basis — feed it into capital gains calculations.
Frequently Asked Questions
What's a capital improvement vs a repair?
Capital improvement: adds value or extends useful life (additions, renovations, new HVAC, new roof). Repair: maintains current condition (paint, fixing a leak, replacing a broken outlet). Improvements add to basis; repairs are deducted as operating expenses if rental.
Why does depreciation reduce basis?
Depreciation deductions during a rental period reduce taxable income each year. The IRS recovers that benefit at sale by reducing your basis — which increases your gain. The recovered portion is taxed at up to 25% as depreciation recapture.
What if I inherited the property?
Stepped-up basis: the new basis is generally fair market value on the date of death of the prior owner. This effectively erases pre-inheritance gain. Special rules apply for community property states and joint ownership.
Do I need receipts for everything?
Yes — the IRS expects substantiation. Keep receipts, contracts, and bank records for every capital improvement. Photos, MLS history, and permit records help corroborate. No documentation = no basis adjustment in an audit.
Related Calculators
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1031 Exchange Calculator
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Depreciation Schedule Calculator
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