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 preparer, trying to calculate the basis of items owned by your client.
You've been provided with the following information:
- There was a $3 asset depreciation.
- The currently recorded basis is $1,329.
- There was a $245 damage assessment.
- There was a $221 partial theft.
What is the adjusted basis for the item?
Answer:
- The basis is now $860.00.
Explanation:
- We start with the initial basis for the property.
BASIS = $1,329 - Then we'll add, or subtract, each adjustment, one at a time.
- The asset depreciation will decrease the basis of the property.
BASIS = $1,329 - 3 - The partial theft will decrease the basis of the property.
BASIS = $1,329 - 3 - 221 - The damage assessment will decrease the basis of the property.
BASIS = $1,329 - 3 - 221 - 245