Asset Basis Rules for REG

This chapter covers the basis rules that determine gain, loss, depreciation, and carryover consequences throughout REG. Many later tax questions become manageable once asset basis is computed correctly at acquisition and adjusted consistently over time.

In This Chapter

• Original Basis and Adjusted Basis Calculations explains how basis begins and how later events change it.
• Gift and Inheritance Basis Rules covers the special carryover and stepped-up or stepped-down rules.
• Personal-to-Business Conversion Basis explains how basis is handled when property changes character.
• Wash Sales and Related-Party Basis Adjustments addresses common exceptions and exam traps.

How to Use This Chapter

• Read this chapter before working gain, loss, depreciation, or transfer questions.
• Focus on which event sets basis and which later event adjusts it.
• Return here whenever a REG miss traces back to using the wrong starting amount for tax computation.

In this section

• Original Basis and Adjusted Basis Calculations
  How acquisition costs, capital improvements, depreciation, and other events establish and change tax basis.
• Gift and Inheritance Basis Rules
  Carryover, double-basis, and date-of-death basis rules for property transferred by gift or inheritance.
• Personal-to-Business Conversion Basis
  The lower-of-cost-or-FMV rule for depreciation when personal property is converted to business use.
• Wash Sales and Related-Party Basis Adjustments
  Loss deferral and basis-adjustment rules for wash sales and related-party property transactions.