What does "Adjusted Basis" refer to in terms of property?

The concept of "Adjusted Basis" in relation to property represents the original cost of the property plus any adjustments made to that cost over time. These adjustments can include factors such as improvements made to the property, certain closing costs, and any depreciation claimed on the property for tax purposes.

This definition is crucial because the adjusted basis is used to determine the gain or loss upon sale; it provides a clearer picture by accounting for the original investment and any changes made over the holding period. Therefore, understanding the adjusted basis allows property owners to accurately report taxes when they sell the property, calculating the difference between the sale price and the adjusted basis to assess capital gains or losses.

In contrast, some of the other options presented do not fully encompass the concept of adjusted basis. The initial purchase price alone does not account for any subsequent adjustments or depreciation that may have been applied. The value after applying depreciation could be part of the adjusted basis but does not factor in improvements or original costs. Lastly, the market value at the time of sale reflects current conditions in the market and does not relate to the basis established for the property itself.