Publication 225 |
2000 Tax Year |
Adjusted Basis
Before figuring any gain or loss on a sale, exchange, or other
disposition of property or figuring allowable depreciation, depletion,
or amortization, you must usually make certain adjustments to the
basis of the property. The result of these adjustments to the basis is
the adjusted basis.
Increases to Basis
Increase the basis of any property by all items properly added to a
capital account. These include the cost of any improvements having a
useful life of more than 1 year.
The following items increase the basis of property.
- The cost of extending utility service lines to
property.
- Legal fees, such as the cost of defending and perfecting
title.
- Legal fees for obtaining a decrease in an assessment levied
against property to pay for local improvements.
If you make additions or improvements to business property, keep
separate accounts for them. Also, depreciate the basis of each
according to the depreciation rules that would apply to the underlying
property if you had placed it in service at the same time you placed
the addition or improvement in service. See chapter 8.
Assessments for local improvements.
Increase the basis of property by assessments for items such as
paving roads and building ditches that increase the value of the
property assessed. Do not deduct them as taxes. However, you can
deduct as taxes charges that are for maintenance, repairs, or interest
charges related to the improvements.
Deducting vs. capitalizing costs.
Do not add to your basis costs you can deduct as current expenses.
For example, amounts paid for incidental repairs or maintenance that
are deductible as business expenses, cannot be added to basis.
However, you can choose either to deduct or to capitalize certain
other costs. If you capitalize these costs, include them in your
basis. If you deduct them, do not include them in your basis. See
chapter 8 in Publication 535.
Decreases to Basis
The following items reduce the basis of property.
- The section 179 deduction.
- The deduction for clean-fuel vehicles and clean-fuel vehicle
refueling property.
- Investment credit (part or all) taken.
- Casualty and theft losses and insurance
reimbursements.
- Amounts you receive for granting an easement.
- Deductions previously allowed or allowable for amortization,
depreciation, and depletion.
- Exclusion from income of subsidies for energy conservation
measures.
- Credit for qualified electric vehicles.
- Gain from the sale of your home on which tax was
postponed.
- Certain canceled debt excluded from income.
- Rebates received from a manufacturer or seller.
- Patronage dividends received as a result of a purchase of
property. See Patronage Dividends (Distributions) in
chapter 4.
- Gas-guzzler tax.
Some of these decreases to basis are discussed next.
Section 179 deduction.
If you choose to take the section 179 deduction for all or part of
the cost of qualifying business property, decrease the basis of the
property by the deduction. For more information, see Section 179
Deduction in chapter 8.
Deduction for clean-fuel vehicle and clean-fuel vehicle
refueling property.
If you take the deduction for clean-fuel vehicles or clean-fuel
vehicle refueling property, decrease the basis of the property by the
amount of the deduction. For more information about these deductions,
see chapter 12 in Publication 535.
Casualties and thefts.
If you have a casualty or theft loss, decrease the basis of your
property by the amount of any insurance or other reimbursement. Also,
decrease it by any deductible loss not covered by insurance. See
chapter 13
for information about figuring your casualty or theft loss.
You must increase your basis in the property by the amount you
spend on repairs that substantially prolong the life of the property,
increase its value, or adapt it to a different use. To make this
determination, compare the repaired property to the property before
the casualty.
Easements.
The amount you receive for granting an easement is usually
considered to be from the sale of an interest in your real property.
It reduces the basis of the affected part of the property. If the
amount received is more than the basis of the part of the property
affected by the easement, reduce your basis in that part to zero and
treat the excess as a recognized gain. See Easements and
rights-of-way in chapter 4.
Depreciation.
Decrease the basis of your property by the depreciation you
deducted, or could have deducted, on your tax returns under the method
of depreciation you chose. If you took less depreciation than you
could have under the method you chose, decrease the basis by the
amount you could have taken under that method. If you did not take a
depreciation deduction, reduce the basis by the full amount of
depreciation you could have taken. If you deducted more depreciation
than you should have, decrease your basis as follows. Decrease it by
the amount you should have deducted plus the part of the excess
depreciation you deducted that actually reduced your tax liability for
any year.
See chapter 8
for information on figuring the depreciation you
should have claimed. See also Changing Your Accounting Method
in chapter 8
for information that may benefit you if you
deducted the wrong amount of depreciation.
In decreasing your basis for depreciation, take into account the
amount deducted on your tax returns as depreciation and any
depreciation you must capitalize under the uniform capitalization
rules.
Exclusion from income of subsidies for energy conservation
measures.
You can exclude from gross income any subsidy you received from a
public utility company for the purchase or installation of any energy
conservation measure for a dwelling unit. Reduce the basis of the
property for which you received the subsidy by the excluded amount.
For more information about this subsidy, see Publication 525,
Taxable and Nontaxable Income.
Credit for qualified electric vehicle.
If you claim the credit for a qualified electric vehicle, you must
reduce your basis in that vehicle by the lesser of the following
amounts.
- $4,000.
- 10% of the vehicle's cost.
This reduction amount applies even if the credit allowed is less
than that amount. For more information on this credit, see chapter 12 in Publication 535.
Canceled debt excluded from income.
If a debt you owe is canceled or forgiven, other than as a gift or
bequest, you generally must include the canceled amount in your gross
income for tax purposes. A debt includes any indebtedness for which
you are liable or which attaches to property you hold.
You can exclude your canceled debt from income if the debt is
included in any of the following categories.
- Debt that is canceled in a bankruptcy case or when you are
insolvent.
- Qualified farm debt.
- Qualified real property business debt (provided you are not
a C corporation).
If you exclude from income canceled debt described in (1) or
(2), you may have to reduce the basis of your depreciable and
nondepreciable property. However, for canceled debt described in (3)
that you exclude from income, you must reduce the basis of
your depreciable property by the excluded amount.
For more information about canceled debt in a bankruptcy case, see
Publication 908, Bankruptcy Tax Guide. For more information
about insolvency and canceled debt that is qualified farm debt, see
chapter 4.
For more information about qualified real property business
debt, see chapter 5 in Publication 334,
Tax Guide for Small
Business.
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