Adjusted Cost Basis Calculator Real Estate

Reviewed by: David Chen, CPA (Certified Public Accountant)

Use this free calculator to quickly determine the adjusted cost basis (ACB) of your real estate property. Understanding your ACB is crucial for calculating accurate capital gains or losses when you sell.

1. Initial Purchase Price ($)

2. Total Capital Improvements ($)

3. Total Depreciation Claimed ($)

Your Adjusted Cost Basis (ACB) is:

$0.00

Adjusted Cost Basis Calculator Real Estate Formula

The Adjusted Cost Basis (ACB) is calculated by taking the initial cost of the property and adding the costs of capital improvements, then subtracting any depreciation deductions previously claimed.


                    ACB = Initial Purchase Price + Total Capital Improvements - Total Depreciation Claimed

Formula Source: IRS Publication 523: Selling Your Home, Investopedia: Adjusted Basis

Variables Explained

Here is a breakdown of the inputs used in the calculator:

Initial Purchase Price: This is the original cost of acquiring the property, including the amount paid for the land, closing costs, title insurance, and legal fees associated with the purchase.
Total Capital Improvements: Significant expenses that add value to the property, prolong its life, or adapt it to new uses (e.g., adding a garage, installing a new HVAC system, major room additions). Routine repairs (like painting) are not included.
Total Depreciation Claimed: If the property was used as a rental or business asset, the total amount of tax depreciation claimed over the years must be subtracted from the basis. This is mandatory, even if the owner failed to claim it.

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What is Adjusted Cost Basis (ACB)?

The Adjusted Cost Basis (ACB) is the starting point for determining the taxable gain or loss when you sell a property. It represents your total investment in the property for tax purposes. If you sell a property for more than its ACB, the difference is considered a capital gain, which is subject to capital gains tax.

Keeping meticulous records of all transactions—from the initial purchase to every subsequent capital improvement and claimed depreciation—is absolutely critical. Without accurate records, you may overpay taxes by miscalculating your gains, or face issues with the IRS if your reported basis is unjustifiably high.

The primary use of the ACB is for tax preparation. It allows investors and homeowners to reduce their taxable profit, especially after excluding the primary residence capital gains exclusion (up to $250,000 or $500,000 if married filing jointly, in the US).

How to Calculate ACB (Example)

Follow these steps to understand how the calculator works:

Start with Initial Cost: An investor purchases a property for $400,000, incurring $10,000 in closing costs. The Initial Basis is $410,000.
Add Capital Improvements: Over five years, the investor installs a new roof and upgrades the kitchen for a total of $70,000 in qualifying capital improvements. ($410,000 + $70,000 = $480,000).
Subtract Depreciation: Because the property was used as a rental, the investor has claimed $45,000 in total depreciation deductions for tax purposes.
Final Calculation: $480,000 (Basis + Improvements) – $45,000 (Depreciation) = $435,000.
Result: The Adjusted Cost Basis is $435,000. If they sold the property for $550,000, their capital gain would be $550,000 – $435,000 = $115,000.

Frequently Asked Questions (FAQ)

1. Is painting a capital improvement?

No. Standard maintenance, like painting, cleaning, or minor repairs, is generally considered a deductible operating expense, not a capital improvement that raises the basis. Capital improvements must be significant and materially extend the property’s life or increase its value.

2. Does the ACB include mortgage interest?

No. Mortgage interest is a separate deduction and is not added to the cost basis of the property. The cost basis only includes purchase price, related acquisition costs, and capital improvements.

3. What if I forgot to claim depreciation on my rental property?

You must still subtract the depreciation that you *could* have claimed (known as “allowed or allowable”) from your basis when calculating capital gains. The IRS generally requires this, even if you never actually took the deduction on your tax return.

4. How is the ACB used when I sell my primary residence?

While most sales of primary residences are excluded from capital gains tax up to a certain limit, the ACB is used to determine the gain. If your gain exceeds the exclusion limit (e.g., $250k for single filers), the excess amount is taxable, and the ACB calculation is necessary.