<<Lets say I buy a new build and pay a contractor $5,000 to put in a driveway. Twenty years later it is replaced at a cost of $8,000. If you take the IRS sketchy guidance guidance literally my driveway cost basis is $13,000. >>
For your example, when you sell, the $8000 is what is part of the cost basis; the $5000 is no longer part of the equation. That 1st driveway is obsolete and does not meet the requirment of extending the life or adding value to the house (yes, it got you to this point in time, but not into the future). Same would apply to multiple roofs, heating systems,etc. over the life of ownership.
This discussion is about personal home ownership. If the building was an investment property, difference rules apply.
Go back to the definition of 'improvement'.
