How do I calculate adjusted basis before selling a rental?

The direct answer

Begin with acquisition basis, then reconcile capital improvements, depreciation allowed or allowable and other adjustments. Missing depreciation records can misstate gain. Obtain the full historical schedule rather than subtracting only deductions remembered from the last return.

A practical example

Illustrative example, not a client result: A property has been refinanced and renovated several times. The current loan balance is not the adjusted tax basis.

Prepare the transaction before committing to the closing structure

An exchange is a transaction structure with eligibility, taxpayer identity, receipt-of-funds and timing requirements. Build an adjusted-basis calculation alongside the cash settlement estimate. Ask the intermediary, closing professionals and tax adviser to coordinate before signing or redirecting proceeds. Then compare the replacement investment with the after-tax sale alternative.

Put the answer into your own tax file

Start by identifying the taxpayer, the tax year and the actual transaction. Then connect the transaction to the original documents before choosing a return line or moving money between accounts. A payment description can be useful evidence, but it cannot replace the underlying facts.

The records to review for this topic are: Purchase basis, depreciation history, sale terms, intermediary documents and replacement-property ownership.

For the example above, write down the decision that needs to be made, the missing information and the person responsible for supplying it. Keep the business, payroll, property and personal return teams aligned when more than one set of records is affected.

Questions to resolve before implementation