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. Your basis in
some assets cannot be determined by cost. If you acquire property other
than through a purchase, you should refer to
Publication 551,
Basis Of Assets, for more Information.
If you buy stocks or bonds your basis purchase is the price plus any additional costs of
purchase such as commissions and recording or transfer fees. If you
have stocks or bonds that you did not purchase , you must determine
their basis depending on how you acquired them.
Refer to
Publication 550,
Investment Income and Expenses, for more information. For information on
the basis of mutual fund shares, Refer to
Publication 564,
Mutual Fund Distributions.
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 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, insurence reimbursements for casualty and theft losses.
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.
For More information on basis and adjusted basis, order
Publication 551.
or ordered by calling 1-800-829-3676, or visit the forms and Publications section of this web site.
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