He then erects a retail facility for $600,000, then depreciates the improvements for tax purposes at the rate of $15,000 per year.
Adjusted basis is one of two variables in the formula used to compute gains and losses when determining gross income for tax purposes.
Section 1012 of the Internal Revenue Code defines “basis” as a taxpayer's cost in acquiring property, except as provided in Sections 1001–1092.
Generally, improvements to property increase basis while depreciation deductions decrease it.
Adjusted basis is calculated as follows: Minus the costs represented by: Adjusted basis is crucial for calculating capital gains and ordinary gains when an asset is sold.