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	Tax Adjusted Basis     Property Taxation: Depreciation Taxation of Profit Adjusted Basis Home Mortgage Interest and Points Deduction   1031 EXCHANGES Capital Gains Tax Corporate Tax Corporation Dividend Tax Double Taxation European Union Savings Taxation Homeowners exemption Foreign Investment in Real Property Tax Act. Flat Tax Principles of Income Tax Income taxes Inheritance Tax Installment Sales Poll Tax Progressive Tax Property taxes California Propositions Purposes and Effects of Taxation Retirement Tax Sales Tax Sales leaseback Tariff Tax Credit, Exemption Equivalent and Tax Tax Rates Tax Treaty Direct and Indirect Taxation Value Added Tax Adjusted basis is the original cost of the property, plus the value of improvement mad e on the property, minus depreciation and losses taken while owning it. Original cost is usually the cost transferred and/or mortgage created or assumed at the time of purchase.    Adjusted basis formula:     Original purchase price ---------------------------------------------------------------------------------------------------------------------------------- + Purchase expense of property ---------------------------------------------------------------------------------------------------------------------------------- + Construction and /or reconstruction cost ---------------------------------------------------------------------------------------------------------------------------------- + Capital improvements ---------------------------------------------------------------------------------------------------------------------------------- - Depreciation allowed ---------------------------------------------------------------------------------------------------------------------------------- -Casualty losses declared in prior years, if any ---------------------------------------------------------------------------------------------------------------------------------- -Demolition losses, if any ---------------------------------------------------------------------------------------------------------------------------------- = Adjusted Basis of Property Sold   What does "basis" mean. This means the manner in which the property is acquired affects its basis. For example: -Inherited Property : The basis to the recipient is usually its fair market value at the time of the decedent's death (a step-up in basis) -Gifted Property or Divorce Settlement Property : If the property is received as a bona fide gift, the basis to the recipient is usually the donor's basis (called its carry-over basis) plus gift tax paid, if any, on the appreciation in value. Any property received from a spouse during marriage or incident to a divorce is considered a transfer by gift. -Exchanged Property . If the property is acquired in a tax free exchange, the basis of the property received is the basis of the old property surrendered (called the substituted basis). decreased by the amount of boot received (money,non-like-kind property, etc.) and increased by gain recognized. -Purchase expenses are added to basis. Common purchase price expenses include attorney fees, escrow fees, recording fees, broker's fees, appraisal cost, surveys, charges for title search, inspection fee and any expenses related to purchase other than those physically affecting the property. -Construction, reconstruction, and capital improvements are added to basis . Any money spent to improve existing property or construct new property (or reconstruct if property is damaged) must be added to basis and depreciated. These capital expenditures are generally defined as amounts paid to acquire property with a useful life on excess of one year, or to permanently improve property. Capital expenditures cannot be currently deducted but must be recovered through annual expenses (called depreciation deduction) taken over the useful life of the depreciable property. -Repairs and maintenance are not added to basis. Expenditures for repairs and maintenance are not capital expenditures and thus are generally deductible in the year paid or inccured. Repairs on business or investment property maintain the property in efficient operating condition. These types of repairs may be deducted so long as they do not materially add to the property's value or prolong its useful life. Repairs on personal residences are not deductible, nor can they be added to the home's basis. What is the difference between repairs and capital improvements? When deciding if an expenditure is a repairs or an improvement, the following questions must be considered: Does the expenditure materially add to the property's value? Does it prolong the property's useful life? If the investor answers yes to wither question, the cost is generally a capital expenditure.