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If you find a magic item (+1, low power spells, etc) can you then use that item as your basis for crafting a magic item and add new enchantments to it? Like say if I find a +1 sword can I use the same rules to craft a magic weapon (I don't have my DMG on hand to quote here) to add a new magical effect like the ability to cast fireball or any other spell?

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On page 284 in the DM's Workshop there is a section on Modifying an Item. It talks about two types of modification, substitution and fusing it with other items. However it not presented in terms of the PCs doing the modification but the referee doing the modification and then determining the resulting rarity.

The default case is that you look up the magic item you want to make, look at its rarity which will tell you the cost to make and the time to make it. That all the rules addresses specifically.

With that being said, there are some tools and common sense rulings you can use when PCs want to modify an existing item.

I recommend doing the following.

  1. Look at the final item that the players wants to make. Goto page 284 and use the guidelines to determine the final item's rarity.
  2. Look at the existing item's rarity and give that as a credit for both cost and time. This will help but not be a big benefit due the fact that every level of rarity beyond uncommon is ten times the cost and time of the previous level of rarity.

You need to decide what happens if the item remains at the same level of rarity. I would recommend at this point is to charge the cost and time for the next lowest level of rarity. With the provision that common magic items can't be modified. Once they are made that it. Given that there are only four common magic items (two potions and two spell scrolls) your players should not find this a limitation.

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