Introduction

Basis is the amount of your investment in property for tax purposes. Use the basis of property to figure the gain or loss on the sale, exchange, or other disposition of property. Also use it to figure the deductions for depreciation, amortization, depletion, and casualty losses. 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.

It is important to keep an accurate record of your basis. For information on keeping records, see chapter 1.

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.

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