What items can be deducted from the adjusted basis?

The correct choice reflects the fact that certain deductions can indeed reduce the adjusted basis of a property. Casualty losses, which occur when property is damaged or destroyed due to a sudden event such as a storm or fire, can be deducted from the adjusted basis. This deduction helps to reflect the actual economic loss associated with the property, ensuring that the tax implications align more closely with the owner’s financial reality.

Additionally, depreciation allowed refers to the systematic allocation of the cost of a tangible asset over its useful life. For real estate, depreciation is an important factor because it accounts for the wear and tear on the property, adjusting the basis downward to match the real economic value of the asset as time goes on. Thus, both casualty losses and depreciation directly impact the adjusted basis and can be deducted.

The other options do not accurately reflect what can be deducted. Total expenses during ownership might cover a wide range of costs but not all are allowed as deductions against the adjusted basis. While the cost of purchasing the property is fundamental to establishing the initial basis, it does not encompass adjustments for deductions like losses or depreciation over time. Additionally, market fluctuations do not directly affect the adjusted basis in terms of tax implications as they reflect value rather than costs incurred and would not lead to