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Pub. 551, Basis of Assets 2004 Tax Year

Introductory Material

This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Important Reminder

Assets held on January 1, 2001.  If you made the election to treat an asset as sold and then reacquired on January 1, 2001 (January 2, 2001, for readily tradable stock), and you hold the asset for more than 5 years from that date, any future gain on the asset is eligible for an 18% (instead of 20%) capital gains tax rate. If you made the election, your basis in the reacquired asset is its closing market price (for readily tradable stock) or fair market value (for any other capital asset or property used in a trade or business) on the date you reacquired it.

Introduction

Basis is the amount of your investment in property for tax purposes. Use the basis of property to figure depreciation, amortization, depletion, and casualty losses. Also use it to figure gain or loss on the sale or other disposition of property. You must keep accurate records of all items that affect the basis of property so you can make these computations.

This publication is divided into the following sections.

  • Cost Basis

  • Adjusted Basis

  • Basis Other Than Cost

The basis of property you buy is usually its cost. You may also have to capitalize (add to basis) certain other costs related to buying or producing the property.

Your original basis in property is adjusted (increased or decreased) by certain events. If you make improvements to the property, increase your basis. If you take deductions for depreciation or casualty losses, reduce your basis.

You cannot determine your basis in some assets by cost. This includes property you receive as a gift or inheritance. It also applies to property received in an involuntary conversion and certain other circumstances.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can e-mail us while visiting our web site at www.irs.gov.

  You can write to us at the following address:


Internal Revenue Service
Technical Publications Branch
W:CAR:MP:FP:P
1111 Constitution Ave. NW
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Useful Items - You may want to see:

Publication

  • 463 Travel, Entertainment, Gift, and Car Expenses

  • 523 Selling Your Home

  • 525 Taxable and Nontaxable Income

  • 527 Residential Rental Property

  • 530 Tax Information for First-Time Homeowners

  • 535 Business Expenses

  • 537 Installment Sales

  • 544 Sales and Other Dispositions of Assets

  • 550 Investment Income and Expenses

  • 559 Survivors, Executors, and Administrators

  • 564 Mutual Fund Distributions

  • 587 Business Use of Your Home

  • 946 How To Depreciate Property

Form (and Instructions)

  • 706-A United States Additional Estate Tax Return

  • 8594 Asset Acquisition Statement

See How To Get Tax Help near the end of this publication for information about getting publications and forms.

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