Adjusted Basis is the value of an asset used for determining gain or loss upon sale. It begins with your initial cost basis (purchase price plus closing costs) and is modified over time. You increase the basis by the cost of capital improvements and decrease it by the amount of depreciation claimed on your tax returns.
How It Applies to Florida Landlords
Florida landlords must maintain meticulous records of all capital expenditures, such as a new roof or HVAC system, as these increase the adjusted basis and reduce the eventual capital gains tax liability upon the property's sale. Conversely, failing to account for depreciation accurately will lead to an incorrect basis, potentially resulting in higher tax bills or issues with the IRS during an audit.
Key Takeaways
- Adjusted Basis = Initial Basis + Improvements - Accumulated Depreciation.
- It is the starting point for calculating capital gains tax.
- Capital improvements increase your basis; repairs do not.
- Keep receipts for all major property upgrades for the duration of ownership.