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 periodicals archive ?
The IRS disallowed the losses, contending that the taxpayer had no basis in the corporation and also was not at risk for the amounts borrowed from the bank.
Keep any records relating to property longer, as they are relevant for determining basis.
Since the first quarter of 2005, the SA delinquency rate for prime ARM loans increased 13 basis points to 2.
If the acquirer knows the identity of the target's shareholders, the collection of this tax basis data can be very straightforward.
However, you would be required to reduce the tax basis in your property by $100.
At the end of the year, one of those three managers had performed 500 basis points over the market, and we were absolutely delighted to double his fee.
In the 1955 regulations, the IRS went on to clarify further the treatment of disappearing basis in redemptions involving related parties and the Sec.
In Revenue Procedure 81-70, the IRS acknowledges that, in the event the acquired target company is widely held, it would be "time consuming, costly, and burdensome" to collect tax basis data from the target shareholders involved in a "B" reorganization.
754 adjustment to basis, because there has not been either a transfer of a partnership interest by a sale or exchange, or a partner's death.
The taxpayer receives a carryover tax basis for the replacement property in a 1031 exchange, rather than a fair-market-value tax basis.
96-70606 (April 29, 1998), a divided panel of the Ninth Circuit permitted a taxpayer to engage in alchemy by ascribing basis to the taxpayer's note contributed to a corporation in order to avoid the effect of section 357(c).
When a Chinese client approached us for a fully supported Asian language version of Delphi, we went to Basis Technology for an internationalization solution because of their proven expertise and success in the industry," said Richard Bibbins, CTO at Newmarket International.