Define Basis.
The face value of an asset for calculating tax liability. It is the original cost plus out-of-pocket expenses.
Define Original Basis
The amount paid for the property or the FMV of the property. Costs to acquire the property and prepare it for use are included in the cost or basis of the property.
Define Adjusted Basis.
Orginal Basis adjusted up or down to reflect added capital or return of investment through tax breaks (i.e. step up in basis for inherited property).
Define Original Issue Discount (OID).
Discount on a debt instrument exceeding 1/4 of 1% of the stated redemption price at maturity. If the discount at purchase qualifies as OID, then the discount must be amortized and included in gross income for each day the debt is held. This prevents inves
Define Carryover Basis.
Carryover basis occurs when a taxpayer receives an asset and takes the same basis as the property had in the hands of the transferor. This occurs primarily in the case of gifts.
What is the Basis for gifted property?
The basis of property received as a gift is generally the same as the donor's basis. Gift tax paid on an appreciated gift may increase the recepient's basis in the property.
If the FMV is equal to or greater than the donor's basis, the donee's basis is th
What is Dual Basis for gift property?
If the FMV is less than the donor's basis, the beneficiary has a dual basis for the property, that is, a basis for loss and a basis for gain. If the beneficiary later transfers the property at a loss, their basis is the property's FMV at the time of the g
What is the effect of Gift Tax on Basis?
If the FMV of the property exceeds the donor's basis on the date of the gift, the increase in the beneficiary's basis is equal to a pro rata portion of the gift tax that is attributable to the unrealized appreciation in the property.
The amount of the add
State the Recovery of Basis Doctrine.
The recovery of basis doctrine states that taxpayers are allowed to recover the basis of an asset without being taxed because such amounts are a return of capital that the taxpayer has invested in the property.
What are the Uniform Capitalization Rules?
The Tax Reform Act of 1986 created one set of capitalization rules applicable to all taxpayers and all types of activities. Though they apply principally to inventory, the Uniform Capitalization Rules are also applicable to affect property used in trade,
What are the Capitalization of Interest Rules?
Interest on debt paid or incurred to finance production expenditures incurred to construct, build, install, manufacture, develop or improve real or certain tangible personal property must be capitalized.
The real or tangible personal property must have "a
When is Allocation of Basis applicable?
When property is obtained in one transaction and portions later sold in multiple transactions. Gain or loss is computed at the time of disposal of each section. The allocation is based on the FMV of the various tracts of land.
What is a Basket Purchase?
When more than one asset is acquired in a single transaction (e.g. a building and the land). Allocation of Basis is based on the FMV of each asset.
How are Common Costs allocated to Basis?
Common costs to obtain or service property for use must be capitalized and allocated to the basis of individual assets.