Definition from Nolo’s Plain-English Law Dictionary
An owner's original tax basis in an asset, adjusted for various events during the period of ownership. The costs of capital improvements are added to the original basis (which is normally the price the owner paid for the asset). The costs of damage or deprecation are subtracted from the original basis. Adjusted basis is used to calculate the owner's capital gain or loss for income tax purposes if the property is sold, or an inheritor's tax basis if the asset passes at the owner's death.