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Tax Basis Adjustment Calculator
Cost basis in real estate isn't static. It goes up for capital improvements, down for depreciation, and gets partially transferred when you do a 1031 exchange. A wrong basis number at sale can cost or save tens of thousands in capital gains tax. This calculator tracks it properly.
Fed + state + NIIT
Estimated total federal tax
$46,510
Net to seller (before state)
$404,540
Adjusted basis
$235,500
Total gain
$215,550
Depreciation recapture portion
$68,000
Capital gain portion
$147,550
Recapture tax @ 25%
$17,000
Cap-gain tax
$29,510
Realized amount (after sale costs)
$451,050
How the math works
Adjusted basis = original cost + acquisition costs + capital improvements − accumulated depreciation − deferred 1031 gain. On $250K original + $8.5K acq + $45K improvements − $68K depreciation = $235.5K adjusted basis. Sale at $485K, after 7% costs = $450,950 realized. Gain $215,450 — $68K recaptured at 25% = $17K, $147,450 cap gain at 20% = $29,490. Total federal tax $46,490.
Track basis in a spreadsheet from day one. Keep receipts for every capital improvement. At sale, errors in basis tracking cost more than years of CPA fees.
How to Use
- Enter original purchase cost plus acquisition costs (title, closing, survey).
- Add cumulative capital improvements (not repairs — real improvements).
- Enter accumulated depreciation taken on investment property.
- Enter any 1031-deferred gain rolled in from a prior exchange.
- See adjusted basis, gain if sold at your target price, and federal + state tax liability estimate.
Frequently Asked Questions
What counts as capital improvement?
Items that add value, prolong life, or adapt to new use: new roof, HVAC replacement, room addition, kitchen/bath remodel. NOT capital: painting, carpet replacement, repair work, patches. Capitalization follows the IRS 'BRA' test — Betterment, Restoration, Adaptation.
How does depreciation affect basis?
Residential rental property is depreciated over 27.5 years. Each year reduces basis by ~3.64% of the original building value (not land). At sale, accumulated depreciation gets 'recaptured' at up to 25% (higher than cap-gain rate), regardless of actual sale price.
What's 1031 carried basis?
In a 1031 exchange, the basis of your new property = old basis − gain deferred. If your old property had $80K basis and you deferred $120K gain buying a $400K replacement, new basis is $280K. Subsequent depreciation continues from that reduced basis — known as 'carryover basis.'
Is the capital gain calc simple?
No. Federal long-term cap gain (0%, 15%, or 20% based on income), plus 3.8% NIIT on high earners, plus state cap-gain tax (varies 0-13.3%), plus depreciation recapture at 25%. This calculator approximates the blended rate; for real decisions, use a CPA.
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