Business, Legal & Accounting Glossary
Adjusted basis is the original cost of a property, plus the value of any capital expenditures for improvements, minus any depreciation.
n. in accounting, the original cost of an asset adjusted for costs of improvements, depreciation, damage and other events which may have affected its value during the period of ownership. This is important in calculating capital gains for income tax purposes since the adjusted basis is generally higher than the original price and will lower capital gains taxes.
Adjusted basis is one of two variables in the formula used to compute gains and losses when determining gross income for tax purposes. The Amount Realized – Adjusted Basis tells the amount of Realized Gain (if positive) or Realized Loss (if negative).
Section 1012 of the Internal Revenue Code defines “basis” as a taxpayer’s cost in acquiring property, except as provided in Sections 1001-1092. Section 1016 then lists 27 adjustments to this basis. Generally, improvements to property increase basis while depreciation deductions decrease it.
Adjusted basis is calculated by beginning with an asset’s original cost basis, and then making adjustments.
Adjusted basis is calculated as follows:
Minus the costs represented by:
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.
The adjusted basis for tax purposes are different than for financial accounting (GAAP) gains or losses on sales of capital assets.
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This glossary post was last updated: 4th August, 2021 | 3 Views.