In [[tax accounting]], '''adjusted basis''' is the net cost of an asset after adjusting for various tax-related items.<ref>{{Cite web |last=Bragg |first=Steven |date=2023-06-01 |title=Adjusted basis definition |url=https://www.accountingtools.com/articles/adjusted-basis |access-date=2023-07-26 |website=AccountingTools |language=en-US}}</ref>

'''Adjusted Basis''' or '''Adjusted Tax Basis''' refers to the original cost or other basis of [[property]], reduced by [[depreciation]] deductions and increased by capital expenditures.

'''Example:''' Michael buys a lot for $100,000. He then erects a retail facility for $600,000, then depreciates the improvements for tax purposes at the rate of $15,000 per year. After three years his adjusted [[tax basis]] is $655,000 = $100,000 + $600,000 - (3 x $15,000).

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).

== Statutory definition ==

Section 1012 of the [[Internal Revenue Code]] defines “basis” as a taxpayer's cost in acquiring property, except as provided in Sections 1001–1092.<ref>{{cite web|url=https://www.govinfo.gov/content/pkg/USCODE-2023-title26/pdf/USCODE-2023-title26-subtitleA-chap1-subchapO-partII-sec1012.pdf|website=United States government website |title=Section 1012 - Basis of Cost - Generally |format=pdf|date=October 4, 2024|access-date=March 12, 2025}}</ref><ref name=LII1012>{{cite web|url=https://www.law.cornell.edu/uscode/text/26/1012|website=Cornell Law School, Legal Information Institute |title=26 U.S. Code § 1012 - Basis of property—cost|date=December 19, 2014|access-date=March 12, 2025}}</ref><ref>{{cite web|url=https://casetext.com/statute/united-states-code/title-26-internal-revenue-code/subtitle-a-income-taxes/chapter-1-normal-taxes-and-surtaxes/subchapter-o-gain-or-loss-on-disposition-of-property/part-ii-basis-rules-of-general-application/section-1012-basis-of-property-cost/analysis?citingPage=1&sort=relevance|website=Thompson-Reuters|title=Section 1012 - Basis of property-cost: 18 Analyses of this statute by attorneys|date=February 8, 2024|access-date=March 12, 2025}}{{dead link|date=August 2025|bot=medic}}{{cbignore|bot=medic}}</ref> There is also an exception or "Special rule" under section 1012 (b) for "apportioned real estate taxes."<ref name=LII1012 />

Section 1016 then lists 27 adjustments to this basis.<ref>{{cite web|url=https://www.law.cornell.edu/uscode/text/26/1016|website=Cornell Law School, Legal Information Institute|title=26 U.S. Code § 1016 - Adjustments to basis|date=August 12, 2022|access-date=March 12, 2025}}</ref> Generally, improvements to property increase basis while depreciation deductions decrease it.

== 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|Accumulated depreciation]], depletion, or [[amortization (accounting)|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.<ref>{{cite web|url=https://www.irs.gov/forms-pubs/about-publication-551|website=IRS official government website|title=About Publication 551, Basis of Assets|date=May 22, 2024|access-date=March 12, 2025}}</ref>

==References== {{Reflist}} * [https://www.irs.gov/publications/p551/ar02.html Publication 551] * [https://www.irstaxapp.com/adjusted-basis-in-real-estate/ Adjusted cost basis Calculator]

[[Category:Accounting in the United States]] [[Category:Accounting terminology]] [[Category:Tax terms]]