Adjusted Basis

To find your property’s basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. These events could include the following.

• Installing utility lines.

• Paying legal fees for perfecting the title.

• Settling zoning issues.

• Receiving rebates.

• Incurring a casualty or theft loss.

For a discussion of adjustments to the basis of your property, see Adjusted Basis in Pub. 551.

If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and

credits with respect to the property. For more information, see What Is the Basis for Depreciation? in chapter 4.

Basis adjustment for depreciation allowed or allowa- ble. You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Depreciation allowable is depreciation you are entitled to deduct.

If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable.

If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed).