What is included in the calculation of Adjusted Basis?

The calculation of Adjusted Basis is an important concept in tax law that helps to determine the value of an asset when it is sold, which in turn affects capital gains or losses. The Adjusted Basis begins with the original cost of the asset but is then modified by several factors that reflect the asset's true economic value at the point of sale.

The correct answer includes several key components: the original cost of the asset, which lays the foundation, plus any improvements made to the asset that enhance its value over time. Additionally, any reimbursements received—such as insurance payouts for damage or other reimbursements that can reduce the basis—must be subtracted. Lastly, depreciation taken on the asset over time must be factored out, as depreciation reduces the value of the asset for tax purposes.

This comprehensive approach provides a more accurate reflection of the asset's value that can impact taxation upon sale. Each element in the calculation captures changes to the asset's value through improvements and deductions that reflect how ownership of the asset has affected its worth.

In contrast, the other options fail to encompass the full scope of what impacts the Adjusted Basis. For instance, considering only depreciation or casualty losses excludes vital parts of the calculation, such as improvements and reimbursements, leading