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.
Here's what you know:
- The currently recorded basis is $1,586.
- There was a $310 improvement that allowed the asset to be used for other purposes.
- There was a $194 damage assessment.
- There was a $367 improvement that increased the value of the asset.
What is the adjusted basis for the item?
Answer:
- The basis is now $2,069.00.
Explanation:
- We start with the initial basis for the property.
BASIS = $1,586 - Then we'll add, or subtract, each adjustment, one at a time.
- The improvement that increased the value of the asset will increase the basis of the property.
BASIS = $1,586 + 367 - The damage assessment will decrease the basis of the property.
BASIS = $1,586 + 367 - 194 - The improvement that allowed the asset to be used for other purposes will increase the basis of the property.
BASIS = $1,586 + 367 - 194 + 310