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This paper presents a low cost tool tracking system that uses one inertial measurement unit (IMU) and one triaxial magnetometer. The proposed system calculates the position and orientation of a fastening tool using an IMU. In addition, an expert system is used to identify the initial position, stationary state, and the fastened bolt. When the tool fastens a bolt, the proposed expert system detects fastening action using a triaxial accelerometer and a triaxial magnetometer. When fastening action is detected, the system corrects the velocity and position error. By using the corrected tool tip position and orientation, the system can identify fastened bolts. Then, by using the fastened bolt position, the position of the IMU is corrected. When the tool is stationary, the system corrects linear velocity error and reduces position error. The experimental results show that the proposed system can identify fastened bolts if the angles of the bolts are different or the bolts are not closely placed.