basis


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Related to basis: SAP BASIS, Basis risk, Basis points

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 classic literature ?
Such is the basis upon which Plato forbids, in his Republic, the division of property.
The fabric of the Reformation, first undertaken in England upon a contracted basis, by a capricious and sanguinary tyrant, had been successively overthrown and restored, renewed and altered, according to the varying humors and principles of four successive monarchs.
The basis of matrimonial bliss is secure, and all thy little defects and frailties are forgiven.
From all the cells, both those just commenced and those completed, being thus crowned by a strong coping of wax, the bees can cluster and crawl over the comb without injuring the delicate hexagonal walls, which are only about one four-hundredth of an inch in thickness; the plates of the pyramidal basis being about twice as thick.
This metrical system, thus shaped, has provided the indispensable formal basis for making English poetry admittedly the greatest in the modern world.
Surveyor of the World), an early fourteenth century poem of twenty-four thousand lines ('Paradise Lost' has less than eleven thousand), relating universal history from the beginning, on the basis of the Biblical narrative.
Therefore, authority means force, and a basis of just judgement should underlie force.
Lastly, that esteem and gratitude are the proper motives to love, as youth and beauty are to desire, and, therefore, though such desire may naturally cease, when age or sickness overtakes its object; yet these can have no effect on love, nor ever shake or remove, from a good mind, that sensation or passion which hath gratitude and esteem for its basis.
However, in the disturbed state of my mind, I did go into the deserted court and did look at all the footprints I could find there, seeking for some indication, as a basis for reasoning.
this is my sorrow: into the basis of things have reward and punishment been insinuated--and now even into the basis of your souls, ye virtuous ones!
This view of the reciprocal causal independence of mind and matter has no basis except in metaphysical theory.
All the impressions of the day, beginning with the impression made by the old peasant, which served, as it were, as the fundamental basis of all the conceptions and ideas of the day, threw Levin into violent excitement.