When you sell an income-property investment, the taxable profit that you realize is called the gain on sale (see Part II, Calculation 35), or simply gain. In order to calculate the gain, you need to know the selling price of the property as well as its adjusted basis. Under the current tax code, the adjusted basis is the original cost of an asset such as real estate, plus capital improvements and costs of sale, less accumulated depreciation.
In order to determine the gain on sale, you first calculate the adjusted basis and then find the difference between that amount and the selling price.
The formula for adjusted basis reads as follows:
Original Basis (Purchase Price)