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DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...

Understanding Tax Terms: Basis Covering the bases on basis

Basis is a common IRS term, but probably does not enter into your everyday conversation. This IRS term is important because it impacts the taxes you pay when you sell, exchange or give away property.

What basis is

The IRS describes basis as:

The amount of your capital investment in a property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange or other disposition of the property.

In plain language, basis is the cost of your property as defined by the tax code.

There are a few different types of basis that apply to different situations, including "cost basis," "adjusted basis," and "basis other than cost."

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Understanding Tax Terms: Basis

Understanding Tax Terms: Basis
Covering the bases on basis

Basis is a common term to the IRS, but one that probably does not enter into your everyday conversation. Understanding what it means, however, can have an impact on the taxes you pay.

Definition

Per the IRS;

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

In plain language, basis is the collection of tax rules that establishes the cost of your property. Once the tax basis is established, you can then apply that basis to determine whether there is a gain or loss on your property when it is disposed, exchanged or sold. Unfortunately, it is not quite that easy. There is also Cost Basis, Adjusted Basis, and Basis other than cost.

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