Question:   I have investment property. Can you explain the term basis of assets?

Answer:   Basis is your investment in property for tax purposes. There are 2 major uses of basis.

• Determining gain or loss (gain or loss on the disposition of an asset is the difference between the selling price and the adjusted basis in the asset); and
• Determining depreciation (the adjusted basis of depreciable property is used to compute allowable depreciation deductions).
  How to determine adjusted basis:
  Your adjusted basis (which is the basis you use to determine gain or loss or depreciation amounts) is the result of increasing or decreasing your original basis to take account of certain events.  Your original basis is usually your cost to acquire the asset.

Increases to basis include but are not limited to:

• The cost of improvements having a useful life of more than a year
• Assessments for local improvements
• Sales tax that is not deducted
• The cost of extending utilities lines to your property
• Legal fees incurred in defending or perfecting title to property
• Costs of obtaining a zoning change for property

Decreases to basis include but are not limited to:

• Depreciation, amortization, and depletion deductions
• Nontaxable corporate distributions
• Insurance reimbursements for casualty and theft losses
• Easements
• Rebates from the manufacturer or seller