Determining Tax Basis
The basis of property is generally the property's cost and holding period. Cost is the amount paid for the property in cash or other property.
Where an asset is acquired in a purchase of just the asset, tax basis includes cash paid plus liabilities assumed. For example, if Joe acquires a building for $10,000 cash and assumes a mortgage for $80,000, Joe's basis in the building is $90,000. If multiple items of property are acquired together in a single transaction, the tax basis must generally be allocated to the items in proportion to their values at the time of acquisition.
Fungible property (e.g., bushels of wheat or shares of corporation stock) may include items of property acquired at different times with differing bases. If such property is sold, the taxpayer may need to use an assumption (such as average cost or FIFO) for determining the cost of the portion of the property sold.
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