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 additional 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. See Publication 550, Investment Income and Expenses, for more information. For information on the basis of mutual fund shares, see Publication 564, Mutual Fund Distributions.

Your basis in some assets cannot be determined by cost. If you acquire property other than through a purchase, you should see 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. Publications can be downloaded from this site, or ordered by calling 1-800-829-3676.

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