Basis is your investment in property for tax purposes. Use the basis
of your property to figure depreciation, amortization, depletion,
casualty losses, and any gain or loss on the sale or exchange of the
The basis of property you buy is usually its cost. The cost is the
amount you pay for it in cash, debt obligations, or other property or
services. Cost includes sales tax and other expenses connected with
The basis of stocks or bonds is the purchase price plus any costs of
purchase such as commissions and recording or transfer fees. There
are other ways to determine the basis of stocks and bonds depending
on how you acquired them. Refer to Publication 550, Investment Income
and Expenses, for more information. For information on the basis of
mutual fund share, read Publication 564, Mutual Fund Distributions.
Your basis in some assets cannot be determined by cost. If you
receive property other than through a purchase, you should refer to
Publication 551, Basis of Assets, for more information.
Before you can figure any gain or loss on a sale, exchange, or other
disposition of property, or figure allowable depreciation, you must
determine the adjusted basis. Certain events that occur during your
period of ownership may increase or decrease your basis, resulting in
an "adjusted basis". Increase your basis by items such as the cost of
improvements that add to the value of the property, and decrease it
by items such as depreciation previously allowable and reimbursements
for casualty and theft losses.
When you hold property for personal use and change it to business use
or use it to produce income (such as renting out your former home),
your basis for depreciation is the lesser of the fair market value of
the property on the date of the change, or your adjusted basis on the
date of the change.
More information on basis and adjusted basis can be found in
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