Business, Legal & Accounting Glossary
For income and capital gains tax purposes, the value that is used to determine profit or loss when property is sold. Often the basis is what you paid for the property, “adjusted” to reflect improvements made or damage incurred while you own the property. See stepped-up basis, carryover basis.
n. the original cost of an asset to be used to determine the amount of capital gain tax upon its sale. An “adjusted basis” includes improvements, expenses, and damages between the time the original basis (price) is established and transfer (sale) of the asset. “Stepped up basis” means that the original basis of an asset (especially real property) will be stepped up to current value at the time of the death of the owner, and thus keep down capital gain taxes if the beneficiary of the dead person sells the asset. Example: Daniel Oldboy buys a house for $30,000, and when he dies the place is worth $250,000. When his son and heir receives the property, the son can sell it for $250,000 with no capital gains tax, but if Dad had sold it before his death there would have been capital gains on $220,000. It can be more complicated than this simple example with assets jointly held with a spouse, exchanges of property, and other variations which require professional assistance.
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This glossary post was last updated: 21st November, 2021 | 5 Views.