Adjusted basis refers to the original cost of an asset, such as property or investments, modified by certain factors to determine the actual gain or loss when the asset is sold.
These adjustments include increases for improvements or additional investments made to the property, and decreases for items like depreciation, tax deductions, or damage losses claimed on taxes. When the asset is eventually sold, the adjusted basis is subtracted from the selling price to calculate the capital gain or loss for tax purposes.
Accurately tracking and calculating adjusted basis is essential to ensure correct reporting on your tax return and to avoid overpaying or underreporting taxes.