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Basis

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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

Basis
Basis is the dollar value from which a taxpayer measures any gain or loss from an asset for income tax purposes. Generally, your basis begins with what you paid for the asset, including purchase costs (cost basis) and then is adjusted up for improvement and sales costs and down for any depreciation or casualty losses claimed on the asset during the period of ownership. As an example, a rental property is purchased for $200,000. $50,000 is made in improvements to the property, $15,000 is deducted in depreciation during the period of ownership and $12,000 is incurred in sales expenses. The basis for that property, referred to as the adjusted basis, is $247,000 ($200,000 + $50,000 - $15,000 + $12,000). Special rules apply in determining a taxpayer's basis in property that is acquired by gift or inheritance. For gifts, the starting basis is generally the adjusted basis of the giver; for inherited assets, the basis generally begins with the value of the property on the date of the decedent's death. Please note that the word “generally” is frequently used in this explanation since it cannot be relied upon in all situations. Please contact this office for assistance.

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