Adjusted basis is an asset's cost basis plus or minus any adjustments (e.g. improvements, easements, credits, etc.) to that cost basis, which are required by the Internal Revenue Code (IRC). Adjusted basis is used in the calculation of a taxpaeyer's capital gains and capital losses.
As of August 2011, according to the IRS Publication 551, the following expenditures increase adjusted basis:
- The cost of extending utility service lines to the property
- Impact fees
- Legal fees, such as the cost of defending and perfecting title
- Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements
- Zoning costs
- The capitalized value of a redeemable ground rent.
While the following expenses decrease adjusted basis:
- Section 179 deduction
- Nontaxable corporate distributions
- Deductions previously allowed (or allowable) for amortization, depreciation, and depletion
- Exclusion of subsidies for energy conservation measures
- Vehicle credits
- Residential energy credits
- Postponed gain from sale of home
- Investment credit (part or all) taken
- Casualty and theft losses and insurance reimbursement
- Certain canceled debt excluded from income
- Rebates from a manufacturer or seller
- Gas-guzzler tax
- Adoption tax benefits
- Credit for employer-provided child care.
Publication 551 (August 2011)
For a more detailed explanation of the fundamentals and nuances of cost basis and adjusted basis, visit the IRS's website.
This brief overview of some important considerations associated with adjusted basis, cost basis, and capital gains/losses is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.
Updated on October 10, 2011