Tax Basis
The amount of investment in an asset for tax purposes, used to determine gain or loss when the asset is sold or otherwise disposed of.
Detailed Explanation
Basis typically starts at the purchase price and is adjusted upward for improvements and downward for depreciation, returns of capital, or losses. Different assets have different basis rules: inherited property generally receives a stepped-up basis to fair market value at the date of death, while gifted property carries over the donor's basis. Tracking basis accurately is critical for correct capital gains calculations on Form 8949 and Schedule D.
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Learn about Individual Tax PreparationRelated Terms
Capital Gain
The profit realized from the sale of a capital asset such as stock, real estate, or cryptocurrency, taxed at preferential rates if held longer than one year.
Form 8949 (Sales and Other Dispositions of Capital Assets)
The IRS form used to report each individual sale or disposition of a capital asset, with totals flowing to Schedule D.
Depreciation
The deduction of the cost of a tangible business asset over its useful life, reflecting wear, tear, or obsolescence.
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