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).

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

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 purposes are different than for financial accounting (GAAP) gains or losses on sales of capital assets.

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