What factor contributes to the adjusted basis of a capital asset?

The adjusted basis of a capital asset is primarily determined by the initial purchase price, supplemented by any additional improvements made to the asset over time. This concept is crucial for understanding how capital gains are calculated when the asset is eventually sold.

When determining the adjusted basis, the initial purchase price is the starting point, but for a more accurate reflection of the asset's value, one must also include costs that enhance the asset’s value or extend its useful life, such as renovations or significant repairs. These improvements are capital expenditures that increase the overall investment in the asset, thereby raising the adjusted basis.

In contrast, market value at the time of sale does not affect the adjusted basis; it only impacts the gain or loss calculation upon disposal of the asset. Similarly, while costs associated with selling the asset can affect the realized gain or loss, they are not considered in the adjusted basis itself. Adjusted basis specifically pertains to the value of the asset based on its purchase price and enhancements made, not on costs incurred during the sale process.