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Basis of Assets

Basis of Assets. Presented by Greg Martinez March 2013. Overview. Information taken from Publication 551. Basis is the amount of your investment in property for tax purposes. Basis is used to figure the following: Depreciation, amortization , depletion Casualty losses

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Basis of Assets

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  1. Basis of Assets Presented by Greg Martinez March 2013

  2. Overview Information taken from Publication 551 Basis is the amount of your investment in property for tax purposes. Basis is used to figure the following: Depreciation, amortization, depletion Casualty losses Gain or loss on the sale or other disposition of property.

  3. Increases and decreases to basis

  4. Example: Refinancing a house $135,000 – because the loan was not used to improve the house Facts • House purchased in 2001 for $135,000 • Refinanced in 2005 for $350,000 • Loan proceeds used to buy another house • What is the basis of the house purchased in 2001?

  5. Example: Forgiveness of Debt Facts: • House was purchased in 2005 for $700,000 • A cash down payment of $180,000 was made • A first mortgage was taken out for $500,000 to buy the house • A second mortgage for $50,000 was take out and used for the following: • Additional down payment - $20,000 • Landscaping for the new house - $25,000 • Pay off credit cards - $5,000

  6. Example: Forgiveness of Debt Answer Cost of house $700,000 Improvements 25,000 Mortgage debt forgiven <41,000> Adjusted basis $684,000 Second mortgage of $50,000 was settled for $4,000 resulting in a debt forgiveness of $46,000. The credit card debt is considered to be discharged first giving a mortgage debt forgiven of $41,000 The second mortgage was settled for $4,000. What is the basis of the house?

  7. Property received as a gift • If the FMV of the property at the time of the gift is less than the donor’s adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. • Your basis for figuring gain is the same as the donor’s adjusted basis plus or minus any required adjustment to basis while you held the property. • Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustment to basis while you held the property.

  8. Property received as a gift The loss is $2,000 ($10,000 - $8,000) Example – You receive a gift of a car that cost $20,000 and had a fair market value of $10,000 on the day of the gift. You sell the car for $8,000, how much is the gain or loss?

  9. Property received as a gift The gain is $3,500 ($6,000 - $2,500) Example – You receive a gift of a gold ring that had a basis of $2,500 and a fair market value of $4,000. You sell the ring for $6,000, how much is the gain or loss?

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