Adjusted basis
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In tax accounting, adjusted basis is the net cost of an asset after adjusting for various tax-related items.
[edit] Calculation
Adjusted basis is calculated by beginning with an asset's original cost basis, and then making adjustments. Adjusted basis is calculated as follows:
- 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.)
Minus the costs represented by:
- Accumulated depreciation, depletion, or amortization
- Casualty or theft Loss
- Other decreases to basis
[edit] 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.
The adjusted basis for tax puposes are different than for financial accounting (GAAP) gains or losses on sales of capital assets.
