Basis of Assets

Basis is generally the amount of your capital investment in a property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange or other disposition of the property.

In most situations, the basis of an asset you purchase is its cost. The cost is the amount you pay for it in cash, debt obligations, and other property or services. Cost includes sales tax and other expenses connected with the purchase. Your basis in some assets is not determined by cost. If you acquire property other than through a purchase (such as a gift or an inheritance), refer to Publication 551, Basis of Assets, for more information. If you acquired your property from an individual who died in 2010, special rules may apply to your calculation of basis. In addition to reviewing Publication 551, you may need to review Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010.

If you buy stocks or bonds, your basis is the purchase price plus any additional costs such as commissions and recording or transfer fees. If you have stocks or bonds that you did not purchase, your basis may be determined by their fair market value or the previous owner’s adjusted basis. Refer to Publication 550, Investment Income and Expenses, for more information.

Before figuring gain or loss on a sale, exchange, or other disposition of property, or before figuring allowable depreciation, you must determine the adjusted basis of that property. Certain events that occur during your period of ownership may increase or decrease your basis, resulting in an “adjusted basis.” Increase your basis by items such as the cost of improvements that add to the value of the property, and decrease it by items such as depreciation allowable and insurance reimbursements for casualty and theft losses.

For more information on basis and adjusted basis, refer to Publication 551 and the Form 1040, Schedule D Instructions, Capital Gains and Losses.

Source: Internal Revenue Service
Last reviewed: September 21, 2013