Unadjusted Basis

The unadjusted basis of an asset is its original cost, plus any capital improvements made to it, minus any depreciation that has been claimed. This is the amount that is used to calculate the taxable gain or loss when the asset is sold.

For example, if you buy a house for $100,000 and make $20,000 in capital improvements, your unadjusted basis would be $120,000. If you then sell the house for $150,000, you would have a taxable gain of $30,000 ($150,000 - $120,000).

The unadjusted basis is important because it is used to determine the amount of depreciation that can be claimed. Depreciation is a tax deduction that allows you to recover the cost of an asset over time. The amount of depreciation that can be claimed each year is based on the asset's unadjusted basis and its useful life.

For example, if you buy a car for $20,000 and its useful life is five years, you could claim $4,000 in depreciation each year ($20,000 / 5 years).

The unadjusted basis is also used to determine the amount of capital gains tax that is owed when an asset is sold. Capital gains tax is a tax that is levied on the profit that is made from the sale of an asset. The amount of capital gains tax that is owed is based on the asset's unadjusted basis, its selling price, and the holding period.

For example, if you sell a stock for $100,000 that you bought for $50,000, you would have a capital gain of $50,000. If you held the stock for more than one year, you would owe long-term capital gains tax on the gain. If you held the stock for less than one year, you would owe short-term capital gains tax on the gain.

The unadjusted basis is an important concept in financial accounting. It is used to calculate the taxable gain or loss when an asset is sold, the amount of depreciation that can be claimed, and the amount of capital gains tax that is owed.