Determining Tax Basis
The basis of property is generally the property's cost and holding period. Cost is the amount paid for the property in cash or other property.
Where an asset is acquired in a purchase of just the asset, tax basis includes cash paid plus liabilities assumed. For example, if Joe acquires a building for $10,000 cash and assumes a mortgage for $80,000, Joe's basis in the building is $90,000. If multiple items of property are acquired together in a single transaction, the tax basis must generally be allocated to the items in proportion to their values at the time of acquisition.
Fungible property (e.g., bushels of wheat or shares of corporation stock) may include items of property acquired at different times with differing bases. If such property is sold, the taxpayer may need to use an assumption (such as average cost or FIFO) for determining the cost of the portion of the property sold.
Read more about this topic: Tax Basis
Famous quotes containing the words determining, tax and/or basis:
“I esteem it the happiness of this country that its settlers, whilst they were exploring their granted and natural rights and determining the power of the magistrate, were united by personal affection. Members of a church before whose searching covenant all rank was abolished, they stood in awe of each other, as religious men.”
—Ralph Waldo Emerson (1803–1882)
“People buy their necessities in shops and have to pay dearly for them because they have to assist in paying for what is also on sale there but only rarely finds purchasers: the luxury and amusement goods. So it is that luxury continually imposes a tax on the simple people who have to do without it.”
—Friedrich Nietzsche (1844–1900)
“The basis of art is truth, both in matter and in mode.”
—Flannery O’Connor (1925–1964)