What is the basis calculation when determining property value includes adjustments for improvements?

When determining the basis calculation for property value, including adjustments for improvements, the correct approach is to take the purchase price, add the cost of any improvements made to the property, and subtract any insurance claims received for damage to the property.

The reasoning behind this is that the basis is meant to reflect the actual investment in the property. Improvements increase the value of the property and should be added to the original purchase price since they enhance the long-term value. Conversely, insurance claims reflect compensation received for losses and should be deducted from the basis because they provide a financial recovery that offsets the original investment.

Thus, the accurate calculation would involve starting with the purchase price, adjusting for both the enhancements made (improvements) and any reductions from money received for damages (insurance claims), leading to a comprehensive understanding of the property's true basis value.