How is Adjusted Basis defined in terms of property?

Adjusted Basis refers to the original cost of a property modified by certain adjustments that account for improvements, depreciation, and other factors affecting the value of the asset over time. This concept is particularly important in real estate as it determines the valuable advantage of calculating capital gains or losses when the property is sold.

For instance, if a homeowner initially purchased a house for $200,000 and later made substantial improvements, such as adding a new bathroom, the cost of those improvements would increase the adjusted basis. Conversely, if the property was depreciated, such as for rental or investment properties, this might lower the adjusted basis as depreciation expense is deducted over time.

The adjustments could also include factors like casualty losses or certain transaction costs related to the acquisition or disposition of the property. Thus, the definition encompasses the concept of the original cost modified to reflect changes that affect the actual value realized at the time of sale, leading to a more accurate calculation of profit or loss.