Tax Basis
The amount used to calculate gain or loss for tax purposes when an asset is sold, typically the original cost adjusted for improvements, depreciation, and other tax-specific factors.
Tax Basis
The amount used to calculate gain or loss for tax purposes when an asset is sold or disposed of, typically representing the original cost adjusted for improvements, depreciation, amortization, depletion, and other tax-specific factors.
For instance, if a business purchases equipment for $100,000, claims $60,000 in depreciation deductions over several years, and spends $20,000 on qualifying improvements, the tax basis would be $60,000 ($100,000 original cost - $60,000 depreciation + $20,000 improvements).
Tax basis serves as the starting point for determining taxable gain or loss on disposition (selling price minus tax basis). Different rules apply to various asset types: business property basis is reduced by depreciation; investment property basis includes acquisition costs and may be increased by reinvested dividends; personal residence basis includes purchase price plus qualifying improvements. Special basis rules apply to inherited, gifted, or exchanged property. Accurate basis tracking and documentation is essential for proper tax reporting, particularly for long-held assets with multiple adjustments over time.