Which factor does not affect the adjusted basis for a converted asset?

The adjusted basis of a converted asset is critical in determining gain or loss for tax purposes when the asset is sold. Adjusted basis generally includes several factors, such as the original purchase price, any capital improvements made, and how debt may affect the basis upon conversion.

The original purchase price is foundational since it forms the starting point of the basis before any adjustments. Capital improvements add to the value of the asset, thereby increasing its adjusted basis. Similarly, when there is debt tied to an asset, this can impact the adjusted basis, particularly if the asset is converted from personal to business use, as the debt can reduce the overall basis for depreciation.

In contrast, fair market value does not directly influence the adjusted basis. While fair market value can be important for certain tax calculations, such as determining gain at the time of sale, it does not factor into the adjusted basis calculation itself. The adjusted basis is rooted in purchase price and any capital enhancements or adjustments stemming from debt, rather than the asset's market value. Thus, fair market value does not play a role in affecting the adjusted basis of a converted asset.