Adjusted Tax Basis

Adjusted Tax basis is the cost of any fixed asset which is calculated after deducting depreciation and adding any new capital expenditure in it. This expenditure may be the cost of repair, legal fees for acquiring fixed asset or commission for purchasing or selling of such asset.


Adjusted Tax Basis ( Cost of Fixed Asset ) = (Original Cost of Fixed Asset + Commission + Registery Fees + Legal fees + Repair for improvement + Tax+ Selling Cost)- Depreciation

Why is Adjusted Tax Basis Calculated 

1. Simple, with this, we can easily calculate capital gain or capital loss if we know the value of adjusted tax basis, it is just current cost of asset.

Capital Gain = Sale  Value of Fixed Asset - Adjusted Tax Basis

Capital Loss = Adjusted Tax Basis - Sales Value of Fixed Asset

2. It is also calculated for finding the value of capital gain tax. After finding capital gain on the basis of adjusted tax basis, we can easily calculate capital gain tax.

3. Fair market value is also calculated on the basis of adjusted cost of fixed asset which is also called adjusted tax basis. Anyone who will buy any property in real estate market only pay on the basis of its current cost.

For Example 

Mr. A has bought a plot of 100 Gaj  in residential area with the cost of Rs. 322500 on the deal with seller. Now, Govt. rate of same plot is Rs. 320,000. For registry of plot, he has paid Rs. 32,000 as fees. He also paid Rs. 1000 to patwari for intkal (recording the deal in books). He has paid commission to real estate agent Rs. 3225. He also taken legal advice for this. He has paid Rs. 1000. He has made building on it by paying Rs. 1,00,000. After 3 years, he sold same plot with building at Rs. 6,00,000.  Three years depreciation of building is Rs. 30,000. Calculate its adjusted tax basis and capital gain or loss.

Adjusted Tax basis = ( Rs. 322500+ Rs. 32000 + Rs. 1000 + Rs. 3225 + Rs. 1000+100000) - 30,000

= 429725

Capital gain = Rs. 6,00,000-4,29,725 = Rs. 170275

Reference of eBook : Dictionary of Accounting 


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Accounting Education: Adjusted Tax Basis
Adjusted Tax Basis
Accounting Education
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