Tax Tip of the Week
900 N. Kings Highway, Cherry Hill, New Jersey 08034
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Fax: 856.667.3652
For the week of
December 6, 1999
Know your basis before you sell.
Basis is just another word for cost. It is cost with a few
possible tax adjustments. When you sell an asset, your gain or loss will be calculated by comparing your sales
proceeds with your tax basis (cost).
Look at these examples of how basis is determined:
You purchase a home for $220,000. While you own it, you add an extra bedroom and a family room at a cost of $50,000.
Your basis in the home is now $270,000. If you sold the home for $400,000, your gain would be $130,000. If you
meet the ownership and occupancy rules for the exclusion of gain on the sale of a residence, you will not be taxed
on the gain.
Another example: Suppose your uncle bought property for $100,000 which he used for business. While running his
business, he took depreciation deductions on the building of $25,000. His basis is now $75,000. If he gifts that
property to you while he is alive, your basis will be the same as his - $75,000. This is true even if the property
is worth much more. If you sell the property for $400,000, your taxable gain will be $325,000.
One more example: If your uncle died and left the above property to you in his will, you get a new basis. Your
basis is generally considered to be the fair market value on the date of your uncle's death. If the value on the
date of death is $400,000, that is your new basis. This step-up in basis is permitted for most property that passes
through an estate. If you sell the property for $400,000, you have no taxable gain.
If you need assistance with tax planning or
with filing your tax return, please give us a call. We are here to see that you pay no more tax than the law requires.
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without further details and/or professional assistance.
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