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2. The all-in cost of a security when it is bought. That is, it is the price of the security plus any applicable fees. This is the price against which any capital gains or losses are calculated for tax purposes. For example, if the tax basis for a stock is $5 per share and the investor sells it for $7, then the capital gain for which one is liable is $2 per share. It is also called the cost basis.
Basis is the total cost of buying an investment or other asset, including the price, commissions, and other charges.
If you sell the asset, you subtract your basis, also known as your cost basis, from the selling price to determine your capital gain or capital loss. If you give the asset away, the recipient's basis is the same amount as yours.
But if you leave an asset to a beneficiary in your will, the person receives the asset at a step-up in basis, which means the basis of the asset is reset to its market value as of the time of your death.
A tax and accounting term referring to the original acquisition cost of a property; used to determine annual depreciation deductions and eventual gain or loss upon the disposition of the property. This concept is fundamental to almost all real estate analysis and real property tax planning,and an important one to master.Some of the key concepts are
• The basis may be increased by adding some acquisition and closing costs. Many taxpayers would prefer to write off those costs as deductible expenses, but that is not allowed.
• The basis may be increased as you make capital expenditures for the benefit of the proper- ty. Usually a capital expenditure is something that adds value above and beyond the slight increase experienced when things are repaired.
• The basis is decreased each year as you deduct depreciation expenses on your taxes.
• Property acquired by gift will have the same basis the donor had, plus any capital improve- ments made by the donee, plus any gift taxes paid by the donor.
• Property acquired by inheritance will receive a stepped-up basis valued as of the date of death or a date 6 months afterward, depending on which election is selected. While this may be good for the heir, it might be bad for the estate to value property at a high value and be required to pay estate taxes.
• Property acquired by virtue of a 1031 exchange will have the same basis as the property sold. If this doesn't make sense, refer to definition for 1031 exchange, which is too long to include here.
• The basis must be allocated between land and improvements. Land cannot be depreciated for tax purposes, but improvements can. There is no precise formula, and taxpayers are expected to use good faith in their allocation rather than setting artificially high improve- ment values in order to maximize depreciation deductions.
• Most consumers do not currently track the basis in their homes, nor the capital improve- ments such as a new roof, swimming pool, or new garage. This is because current tax code provisions allow individuals up to $250,000 in gain ($500,000 for married persons) on the sale of their personal residence without incurring any tax liability. However, the apparent large size of this number could easily be eroded by inflation, and Congress could easily change the tax laws.