# Adjusted basis

> Adjusted basis is what you paid for property, adjusted over time. The IRS uses it to decide if a payment for your damaged car is taxable income.

Canonical page: https://accidentclaimfacts.com/glossary/adjusted-basis/  
Last reviewed: October 29, 2026 by the Accident Claim Facts editorial team  
General information, not legal advice. Talk to a licensed attorney in your state.

## Quick answer

Adjusted basis is a tax term. It starts with what you paid for property, then goes up for improvements and down for certain items, such as depreciation deductions. The IRS uses it to decide whether money you receive for property, such as a damaged car, counts as income.

## In a car accident claim

Many crash settlements include money for the car itself: repairs, a total-loss payment or a drop in value. Under IRS Publication 4345, a settlement for loss in value of property is not taxable up to your adjusted basis in the property, which the settlement reduces; any amount above basis is income. So the tax question for the car part of a claim is how the payment compares with your adjusted basis in the car.

Money for injuries follows different rules. Our guide to [whether settlements are taxable](https://accidentclaimfacts.com/money/are-settlements-taxable/) explains how the IRS treats each part of a settlement, and the guide to [property damage and diminished value](https://accidentclaimfacts.com/money/property-damage-and-diminished-value/) covers the car claim itself. Because the numbers depend on your records, many people check with a tax professional before filing.

## Example

> **Example:** A driver's pickup is repaired after a crash, and the at-fault driver's insurer also pays for the truck's loss in value. The payment is less than the driver's adjusted basis in the truck. Under the IRS rule, that payment is not taxable income, but it lowers the driver's basis, which matters if the truck is sold later.

## Related terms

- [Diminished value](https://accidentclaimfacts.com/glossary/diminished-value/)
- [Actual cash value](https://accidentclaimfacts.com/glossary/actual-cash-value/)
- [Economic damages](https://accidentclaimfacts.com/glossary/economic-damages/)

## FAQ

### Is adjusted basis the same as what I paid for my car?

Not always. Basis usually starts with the purchase price, then changes over time: improvements raise it, and items such as depreciation deductions or earlier insurance payments for damage lower it.

### Do I have to report a car damage settlement on my taxes?

According to IRS Publication 4345, a property settlement below your adjusted basis is not taxable, and only an amount above basis is income. A tax professional can check how this applies to your records.

## Sources

- [Cornell Law School, Legal Information Institute, Wex: adjusted basis](https://www.law.cornell.edu/wex/adjusted_basis) — general definition
- [IRS, Publication 4345, Settlements—Taxability](https://www.irs.gov/pub/irs-pdf/p4345.pdf) — property settlements and adjusted basis