On September 12, Congressional Research Service ("CRS") issued a report on tax basis. The report explained tax basis, described how it is calculated and adjusted, and discussed how it can be used in tax law.
CBS defines tax basis as "amount that a taxpayer can use as the cost of property that is sold, abandoned, or given away." Tax basis is calculated differently depending on how the property is acquired (purchase, inheritance, gift). I.R.C section 1012, 1014, and 1015 explain how tax basis is calculated for property acquired through purchase, inheritance, or gift respectively.
Once a taxpayer has acquired the property, the tax basis for that property may be adjusted. Taxpayers typically receive reductions in the tax basis when the taxpayer uses the property for work or business. Taxpayers will typically see an increase in their tax basis when they have incurred expenses in improving the property.
Tax basis can be used in tax law in order to determine whether there has been a gain or loss when the property is sold. With respect to business-use property, tax basis is a contributing factor used to determine allowable depreciation. More information on determining gain or loss when property is sold or depreciation of business-use property can be found in I.R.C. sections 1001 and 167 respectively.
Posted by Shannon Morris, Associate Editor, Wealth Strategies Journal
CBS defines tax basis as "amount that a taxpayer can use as the cost of property that is sold, abandoned, or given away." Tax basis is calculated differently depending on how the property is acquired (purchase, inheritance, gift). I.R.C section 1012, 1014, and 1015 explain how tax basis is calculated for property acquired through purchase, inheritance, or gift respectively.
Once a taxpayer has acquired the property, the tax basis for that property may be adjusted. Taxpayers typically receive reductions in the tax basis when the taxpayer uses the property for work or business. Taxpayers will typically see an increase in their tax basis when they have incurred expenses in improving the property.
Tax basis can be used in tax law in order to determine whether there has been a gain or loss when the property is sold. With respect to business-use property, tax basis is a contributing factor used to determine allowable depreciation. More information on determining gain or loss when property is sold or depreciation of business-use property can be found in I.R.C. sections 1001 and 167 respectively.
Posted by Shannon Morris, Associate Editor, Wealth Strategies Journal
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