Unadjusted Basis

The unadjusted basis of assets is the actual price paid for purchasing an asset without any reductions from depreciation deductions. In order words, the unadjusted basis is an asset’s original cost. The only added costs included in the unadjusted basis besides the original cost of an asset are expenses and liabilities assumed by the buyer to purchase the asset.

While an unadjusted basis does not include any changes that incur on the purchase price over time, the adjusted basis does. The unadjusted basis is similar in ways to the concept of cost basis, and it also includes depreciation. It is strictly used for tax purposes to determine the capital gains and losses on a sale.

What is the Unadjusted Basis Immediately after Acquisition?

The unadjusted basis immediately after acquisition (UBIA) is one of the two items that affect qualified business income (QBI) through the Tax Cuts and Job Acts, namely the Section 199A deductions. The UBIA is the basis of qualified property based on the date when the asset was placed in service. Qualified property is considered any tangible property owned, used by the business in producing QBI.

From that, we get the following question. What is the unadjusted basis of qualified property? Determining a qualified property for the UBIA calculation, we have to consider any property owned by a company and enter a depreciation period that starts when the property is placed in service for that company and ends later on (up to 10 years). 

What is the Unadjusted Basis in General Real Estate?

To simplify the concept above, which only applies to businesses, we will look at what happens to a real estate owner on an unadjusted basis. As we already mentioned, the unadjusted basis is used to determine the original cost of the purchase.

Looking at John, a homeowner, who bought a house for his family, we will see the cost he incurred for the purchase. John bought his property by paying $50,000 in cash as a downpayment, and the rest came from a $150,000 mortgage. Through the purchase agreement, John agreed to pay the closing costs of the transaction of $6,000. John’s unadjusted basis for the property is his $50,000 added to the $150,000 mortgage and the $6,000 closing costs.

$50,000 + $150,000 + $6,000 = $206,000