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Adjusted Basis (in an Asset)

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Definition:

The Adjusted Basis in a capital asset is the net cost of that asset adjusted for certain tax items.

The cost of the asset includes:

  • the purchase price
  • the cost of improvements
  • any legal fees related to the purchase or use of the asset
  • selling costs.

Then, adjustments are made to this cost for

  • accumulated depreciation
  • losses (casualty or theft)
  • other tax-related costs and losses.

For more information on adjusted basis, refer to IRS Publication 551.

The calculation of adjusted basis is an important concept because it is used to determine the capital gain on the sale of an asset.

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