Introduction

This chapter discusses how to figure your basis in property and covers the following topics.

• Cost basis of property you buy.
• Adjustments to basis after you receive property.
• Basis other than cost.

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

If you use property for both business and personal purposes, you must allocate the basis based on the use. Only the basis allocated to the business use of the property can be depreciated.

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.

Generally, the higher your basis for an asset, the less gain you will have to report on its sale. The higher your basis in a depreciable asset, the higher your depreciation deductions.

Publication
• 15-B - Employer’s Tax Guide to Fringe Benefits
• 523 - Selling Your Home
• 525 - Taxable and Nontaxable Income
• 535 - Business Expenses
• 537 - Installment Sales
• 544 - Sales and Other Dispositions of Assets
• 550 - Investment Income and Expenses
• 551 - Basis of Assets
• 564 - Mutual Fund Distributions
• 946 - How To Depreciate Property

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