Adjusted basis
For U.S. tax purposes, an asset’s basis after required increases and decreases, including capital improvements and tax depreciation allowed or allowable. Adjusted tax basis is used to calculate gain or loss on disposition and may differ from book value.
Adjusted basis in round numbers
Hypothetical: a machine has an initial tax basis of US$10.0m and a US$6.0m basis reduction for tax depreciation allowed or allowable. With no other basis adjustments, adjusted tax basis is US$4.0m. A sale with US$7.0m of amount realized produces US$3.0m of gain before considering its tax character, recapture or any applicable nonrecognition rules. These are illustrative tax inputs, not authenticated Hanil figures.
| first | Initial tax basis US$10.0m |
|---|---|
| − | Tax depreciation allowed or allowable US$6.0m |
| = | Adjusted tax basis US$4.0m |
Source: IRS Publication 551: Adjusted Basis and Depreciation · IRS Publication 550: Figuring Gain or Loss · IRS: Sale of a business.
Terms Related to Adjusted basis
Asset sale vs stock sale · Purchase price allocation · Depreciation · NOL · All of the glossary