What is adjusted basis?

“Basis” in property is generally understood as your investment in a piece of property. For example, if you purchased an antique for $500, your basis in that piece of property is $500, even if it is now worth $10,000. Adjusted basis is calculated by taking your basis of property and adjusting it up or down because of certain events that occurred while you owned the property. For example, if you made improvements on the property, your cost of these improvements increases the adjusted basis of the property (because you invested that additional money in the property). Similarly, if the property has depreciated or otherwise lost value (such as from a previous casualty or theft loss), the adjusted basis of the property decreases.