A more thorough explanation:

Definition: Adjusted basis refers to the cost basis of an asset that has been adjusted for various events that occurred during its ownership. It is commonly used to calculate an owner's capital gain or loss for income tax purposes when the property is sold or to calculate an inheritor's tax basis when they receive property from a testator's estate.

When adjusting basis, expenses made to maintain or improve property are usually capitalized (or added) to the original basis (purchase price) of the property. Deductions taken for depreciation and casualty losses are subtracted from the basis because they effectively reduce the property owner's cost of ownership and the value of the property.

The following are examples of items that commonly increase the basis of property:

• Zoning costs
• The cost of extending utility service lines to a property
• Impact fees
• Legal fees for defending and perfecting title

The following examples decrease the basis of property:

• Investment tax credit
• Tax credit for qualified electric vehicles
• Postponed gain from the sale of a home
• Insurance reimbursements for casualty and theft losses

For example, if a property owner spends money to add a new room to their house, the cost of the addition would be added to the property's adjusted basis. On the other hand, if the property owner receives insurance reimbursement for a theft loss, the amount of the reimbursement would be subtracted from the property's adjusted basis.