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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