Basis Adjustments for Tax Basis
Lesson:
The basis of property will change over time.
If value is added with a useful life greater than a year, it will go up.
If value is reduced, it will go down.
As an accountant, you need to track these fluctuations to ensure that your property basis is appropriately recorded.
You're a tax accountant, trying to calculate the basis of a set of items owned by your client.
You've been provided with the following information:
- The currently recorded basis is $1,039.
- There was a $88 improvement that increased the value of the asset.
- There was a $28 asset depreciation.
- There was a $110 improvement that allowed the asset to be used for other purposes.
What is the adjusted basis for the item?
Answer:
- The basis is now $1,209.00.
Explanation:
- We start with the initial basis for the property.
BASIS = $1,039 - Then we'll add, or subtract, each adjustment, one at a time.
- The asset depreciation will decrease the basis of the property.
BASIS = $1,039 - 28 - The improvement that increased the value of the asset will increase the basis of the property.
BASIS = $1,039 - 28 + 88 - The improvement that allowed the asset to be used for other purposes will increase the basis of the property.
BASIS = $1,039 - 28 + 88 + 110