• Briefly explain how you would calculate the adjusted basis of a capital asset and how you would characterize the gain or loss.

 why the adjusted basis of a capital asset is important.

Why is characterizing a gain or loss important?

Businesses invest in capital assets on a regular basis. When a capital asset is sold, the adjusted basis of the asset is a critical component in the calculation of a gain (loss), which is part of determining taxable income (loss). Calculating and reporting the gain (loss) incorrectly can cause erroneous tax returns and possible underpayment of taxes. To avoid such situations, businesses need to know how to calculate the adjusted basis of an asset.

 

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