Basis of Property
The following information will help you calculate your basis of property owned for computing taxes on any gains. It is always very important to keep accurate records and track the basis of any property that must be sold.
Usually, the basis is the amount of capital investment in property for tax purposes. Use your basis for figuring depreciation, amortization, depletion, casualty losses and any gain or loss on the sale, exchange or other disposition of the property.
In most situations, the basis of property you buy is its purchase 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 related to the purchase.If you purchase the property by means other than a purchase (such as a gift or inheritance), see Publication 551, Basis of Assets (Basis of goods) for more information.
Calculating Basis of Property
If acquired property of an individual who died in 2010, you may apply special rules to the calculation of the base. In addition to reviewing Publication 551, you may need to review the Publication 4895 ,Tax Treatment of Property Acquired From a Decedent Dying in 2010.
If you buy stocks or bonds, your basis is the purchase price plus any other additional costs, such as commissions and fees for registration or transfer. If you have stocks or bonds not bought, its base could be determined by the fair market value or the adjusted basis of the previous owner. See Publication 550, Investment Income and Expenses (income and investment expenses) for more information.
What is Basis of Property?
Before calculating the gain or loss on a sale, exchange or other disposition of property, or before calculating the allowable depreciation, you have to determine the adjusted basis of the property. Certain situations that occur during the period of lawful possession could increase or decrease its base, resulting in an “adjusted basis.” Increase in basis, such as, the cost of improvements that add to the value of your property, and decrease it with other aspects such as allowable depreciation and insurance reimbursements for casualty losses and theft.
For more information on calculating the basis and adjusted basis of property, see Publication 551 and the Instructions for Schedule D (and Form 8949), Capital Gains and Losses.