In this case basis is just another word for cost. So when we refer to adjusted basis, we are really saying adjusted cost. So once you deduct selling fees, depreciation, and capital improvements (building repairs), you will have the adjusted basis/adjusted cost. This is the amount that will be subtracted from the selling price to determine the true capital gain on the property. However, determining the adjusted basis does not apply to you because you inherited the property. You can ignore the adjusted basis lingo all together.
Let's say the FMV (Fair market value) of the property was $650,000 at the time of your uncle's death. The $650,000 would be the starting number to determine the true capital gain. The property sales
for $750,000. Your gain would be $100,000. The $100,000 will be taxed at the 15% capital gains rate
Basis of Inherited Property
The basis of inherited property is usually its fair market value at the time of the donor's death. There are three exceptions to this rule.
1. If a federal estate tax return
is required and if the property must be included in the decedent's gross estate, the basis may be the special-use valuation if special-use valuation is elected.
2. If a federal estate tax return is required and if the property must be included in the decedent's gross estate, the basis may be the fair market value on the alternate valuation date if alternate valuation is
elected. Special-use and alternate valuation are permitted only under special circumstances.
3. When an heir, or an heir's spouse, gifted the property inherited to a person who dies within one year of the gift the basis of the inherited property is the deceased person's basis immediately before death rather than its fair market value. This is the same as the original owner's basis prior to the original gift. This rule
came into effect in 1981 to prevent individuals
from gaining the benefit
of basis stepped up to fair market value by a temporary transfer of property to elderly persons.