basis

(redirected from Tax basis)
Also found in: Dictionary, Thesaurus, Medical, Financial, Encyclopedia, Wikipedia.

Basis

The minimum, fundamental constituents, foundation, or support of a thing or a system without which the thing or system would cease to exist. In accounting, the value assigned to an asset that is sold or transferred so that it can be determined whether a gain or loss has resulted from the transaction. The amount that property is estimated to be worth at the time it is purchased, acquired, and received for tax purposes.

In a simple case, the basis of property for tax purposes under the Internal Revenue Code is the purchase price of a piece of property. For example, if a taxpayer purchases a parcel of land for $500,000, and no deductions apply to that parcel of land, the taxpayer's basis is $500,000. If the taxpayer later sells the property for $550,000, the amount of gain realized by the transaction is the sale price ($550,000) less the adjusted basis ($500,000), or $50,000.

Where a taxpayer is allowed to depreciate property with a limited useful life, such as an automobile used primarily for business purposes, the taxpayer's adjusted basis is reduced. Assume a taxpayer purchases an automobile for $30,000, and then claims deductions for $5,000. The adjusted basis of the automobile is then reduced to $25,000. When the taxpayer sells the automobile for $26,000, the amount of gain realized is $1,000 (the sale price of $26,000 minus the adjusted basis of $25,000).

Further readings

Bankman, Joseph et al. 2002. Federal Income Tax: Examples and Explanations. New York: Aspen Law & Business.

Hudson, David M., and Stephen A. Lind. 2002. Federal Income Taxation. St. Paul, Minn.: West.

Cross-references

Internal Revenue Code; Profit.

basis

n. the original cost of an asset to be used to determine the amount of capital gain tax upon its sale. An "adjusted basis" includes improvements, expenses, and damages between the time the original basis (price) is established and transfer (sale) of the asset. "Stepped up basis" means that the original basis of an asset (especially real property) will be stepped up to current value at the time of the death of the owner, and thus keep down capital gain taxes if the beneficiary of the dead person sells the asset. Example: Daniel Oldboy buys a house for $30,000, and when he dies the place is worth $250,000. When his son and heir receives the property, the son can sell it for $250,000 with no capital gains tax, but if Dad had sold it before his death there would have been capital gains on $220,000. It can be more complicated than this simple example with assets jointly held with a spouse, exchanges of property, and other variations which require professional assistance. (See: adjusted basis)

basis

noun assumption, authority, background, base, cause, essence, foundation, fulcrum, fundamentals, fundus, ground, groundwork, hypothesis, justification, motive, premise, principle, proposition, purpose, raison d'être, rationale, reason, root, source, support, underlying principle, warrant
Associated concepts: basis of cost, basis of keeping accounts, basis of the bargain, cash basis, contingency basis, cost-plus basis
See also: assumption, base, cause, center, consequence, content, criterion, derivation, determinant, documentation, essence, foundation, gist, ground, main point, meaning, pattern, precedent, preparation, purpose, rationale, reason, significance, source, stare decisis, substance, supposition
References in periodicals archive ?
Similarly, if the shareholder's tax basis in the shares redeemed is minimal or zero, the sale or exchange treatment of the transaction may not have a material effect on taxable income.
To the extent that a distribution exceeds the amount of E&P allocated to it, the excess will first be applied to reduce your tax basis in your STWD stock and, to the extent it exceeds your tax basis in your STWD stock, will be treated as if it were gain on the sale of that stock.
To promote home ownership and in recognition of the difficulties of ascertaining a home's tax basis, Congress has traditionally offered homeowners numerous tax benefits.
Presently, the only use that would not ultimately require tax basis information would be to move in.
Aggregate tax basis of McDermott shares before B&W spin-off:
After formation, Partner A has an outside tax basis of $100 in its AB partnership interest, and Partner B has an outside tax basis of $50 in its AB partnership interest.
The taxpayer receives a carryover tax basis for the replacement property in a 1031 exchange, rather than a fair-market-value tax basis.
If the acquirer knows the identity of the target's shareholders, the collection of this tax basis data can be very straightforward.
In normal circumstances, donating qualifying food inventory can result in a charitable contribution deduction greater than the tax basis of the food inventory (Sec.
However, the business' buyer may desire an asset sale to receive a stepped-up tax basis in the acquired assets.
According to the explanatory notes, the proposals were intended to prevent taxpayers from utilizing internal reorganizations to create additional surplus or an increase in the tax basis of shares in circumstances in which the shares transferred would continue to be part of the group and thus continue to have surplus balances in respect of the taxpayer or a non-arm's-length party.