Definition: Adjusted Basis is the net cost of an asset after adjusting for various tax-related items.
Adjusted basis is calculated by beginning with an asset's original cost basis, and then making adjustments. Adjusted basis is calculated as follows:
- Cost Basis
- + Purchase costs (title & escrow fees, broker commissions, shipping, sales tax, etc.)
- + Improvements (rehabilitation expenses & substantial repairs)
- + Legal fees (to defend or to perfect title to the property, zoning costs, etc.)
- + Selling costs (title & escrow fees, broker commissions, shipping, transfer fees, etc.)
- - Accumulated depreciation, depletion, or amortization
- - Casualty or theft Loss
- - Other decreases to basis
- = Adjusted Basis
Adjusted basis is crucial for calculating capital gains and ordinary gains when an asset is sold.
A complete list of adjustments which increase or decrease basis is found in IRS Publication 551, Basis of Assets.
