Definition
The cost basis adjusted for depreciation, capital improvements, and other modifications.
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Adjusted basis equals original cost basis plus improvements minus depreciation taken. Used to calculate gain or loss on sale.
Pro Tip
Depreciation reduces basis; understand that depreciation recapture tax may apply when selling.
Example
Cost basis of $300,000 plus $50,000 improvements minus $100,000 depreciation equals $250,000 adjusted basis.