Question

You purchased an irrigation system for your business in 2013 for $5,000. The
depreciation deduction allowed for tax purposes was $500 in 2013, $750 in 2014, and
$1,000 in 2015. What is the adjusted basis?

Answer 1

The adjusted basis for the irrigation system is $2,750.

Explanation

Whenever various depreciation expenses and other tax deductions are reduced from the original cost of an asset, the adjusted basis of such asset is achieved.

OR
Adjusted basis is the net cost of an asset remaining after various tax deductions and depreciation expenses.

In the given case :

You purchased an irrigation system for your business in 2013 for $5,000.
The depreciation deduction allowed for tax purposes was $500 in 2013, $750 in 2014, and
$1,000 in 2015.

Now, the calculations for adjusted basis is as follows :

Original cost in 2013. $5000
Less : Various depreciation
deductions allowed for tax purposes

in 2013 $500
in 2014 $750
in 2015 $1,000
  

The adjusted basis
(remaining amount)    $ 2.750