Property Transactions and Basis Planning
Importance of Tax Basis
Tax basis affects depreciation, gain or loss recognition, and future tax consequences. Proper basis calculations are essential when property is acquired, exchanged, contributed, inherited, or sold.
- Determine initial basis correctly.
- Adjust basis for improvements, depreciation, and other required items.
- Calculate gain or loss using adjusted basis.
- Consider basis implications in business formations and distributions.
Note
Many REG exam questions require accurate basis calculations before any tax consequences can be determined.
Summary
Basis serves as the foundation for numerous tax calculations throughout a taxpayer's lifetime.