Adjusted cost basis is a cost valuation basis used in tax accounting in which the historical cost of an asset undergoes various adjustments to arrive at an adjusted cost basis. The adjusted cost basis is needed to determine potential gains and losses resulting from the sale of real estate in subsequent periods. Making sure the adjusted cost basis is right from the starting point is critical for recognizing future gains and losses and minimizing potential tax liability arising from the sale of real estate. Some of the adjustments used in adjusted cost basis valuation include adjustments for depreciation, capital improvements, assessments for local improvements, casualty losses less home insurance reimbursement proceeds. Calculation of adjusted cost basis is much more complex if the property was received as a gift or as an inheritance.