Basis is your investment in a property. For tax purposes, use the basis to figure
depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale
or exchange of the property.
The basis of property you buy is usually its cost. The cost is the amount you pay for
it in cash, debt obligations, or other property or services. Cost includes sales tax and
other expenses connected with the purchase.
The basis of stocks or bonds is the purchase price plus any costs of purchase such as
commissions and recording or transfer fees. There are other ways to determine the basis of
stocks and bonds depending on how you acquired them. Get Publication
550, Investment Income and Expenses, for more information. For information on
the basis of mutual fund shares, get Publication
564, Mutual Fund Distributions.
Your basis in some assets cannot be determined by cost. If you receive property other
than through a purchase, you should get Publication 551, Basis
of Assets, for more information.
Before you can figure any gain or loss on a sale, exchange, or other disposition of
property, or figure allowable depreciation, you must determine the adjusted basis. 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 previously allowable, reimbursements for casualty and theft losses, and gain
from the sale of your old home on which tax was postponed.
When you hold property for personal use and change it to business use or use it to
produce income (such as renting out your former home), your basis for depreciation is the
lesser of the fair market value of the property on the date of the change, or your
adjusted basis on the date of the change.
More information on basis and adjusted basis can be found in Publication
551. Order publications by calling 1-800-829-3676, or download them from this web site.
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