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Taxmap/pub17/p17-075.htm#TXMP537f7bac Adjusted Basis

Adjusted Basis

Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the basis of the property. The result of these adjustments to the basis is the adjusted basis.

Examples of items that increase or reduce basis are shown in Table 14-1. The following discussions provide information about many of these items.

Taxmap/pub17/p17-075.htm#TXMP47ee6131 Increases to Basis

Basis, Increases

Increase the basis of any property by all items properly added to a capital account. These include the cost of any improvements having a useful life of more than 1 year. Other items added to the basis of property include the cost of extending utility service lines to the property and legal fees, such as the cost of defending and perfecting title and the fees for getting a reduction of an assessment levied against property.

Taxmap/pub17/p17-075.htm#TXMP2cf1df5f Improvements.

Improvements

Add to your basis in property the cost of improvements if they increase the value of the property, lengthen its life, or adapt it to a different use. For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway.

Taxmap/pub17/p17-075.htm#TXMP0bb37328 Assessments for local improvements.

Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Do not deduct them as taxes. However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements.

Taxmap/pub17/p17-075.htm#TXMP25916f04
Example.

Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Add the assessment to your property's basis. In this example, the assessment is a depreciable asset.

Taxmap/pub17/p17-075.htm#TXMP01cfbac2 Decreases to Basis

Decreases to Basis

Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. These include the items discussed below.

Taxmap/pub17/p17-075.htm#TXMP40ed64d0 Casualty and theft losses.

Casualty and Theft Loss

If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance.

You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. To make this determination, compare the repaired property to the property before the casualty.

For more information on casualty and theft losses, see chapter 27.

Taxmap/pub17/p17-075.htm#TXMP3757e9b8 Depreciation and section 179 deduction.

Depreciation and section 179 deduction.

Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected.

For more information about depreciation and the section 179 deduction, see Publication 946.

Taxmap/pub17/p17-075.htm#TXMP4fd5b14f
Example.

You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. You added an improvement to the duplex that cost $10,000. In February last year, the duplex was damaged by fire. Up to that time, you had been allowed depreciation of $23,000. You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. You deducted a casualty loss of $1,000 on your income tax return for last year. You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Figure the adjusted basis of the duplex as follows:

Original cost of duplex			$35,000
Addition to duplex			10,000
Total cost of duplex			$45,000
Minus:	Depreciation		23,000
Adjusted basis before casualty			$22,000
Minus:	Insurance proceeds	$19,700
	Deducted casualty loss	1,000
	Salvage proceeds	1,300	22,000
Adjusted basis after casualty			$-0-
Add: Cost of restoring duplex			19,000
Adjusted basis after restoration			$19,000

Your basis in the land is its original cost of $5,000.

Taxmap/pub17/p17-075.htm#TXMP42ec5c6c Easements.

The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. It reduces the basis of the affected part of the property. If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain.

If the gain is on a capital asset, see chapter 17 for information about how to report it. If the gain is on property used in a trade or business, see Publication 544 for information about how to report it.

Taxmap/pub17/p17-075.htm#TXMP68213b7e Credit for qualified electric vehicles.

Electric Vehicle Credit

If you claim the credit for a qualified electric vehicle, you must reduce your basis in that vehicle by the maximum credit allowable even if the credit allowed is less than that maximum amount. For information on this credit, see chapter 12 in Publication 535.

Taxmap/pub17/p17-075.htm#TXMP6b1f48d9 Deduction for clean-fuel vehicle and refueling property.

Clean-Fuel Vehicle Refueling Property

If you take the deduction for clean-fuel vehicles or clean-fuel vehicle refueling property, decrease the basis of the property by the amount deducted. For more information about these deductions, see chapter 12 in Publication 535.

Taxmap/pub17/p17-075.htm#TXMP10c73c1e Exclusion of subsidies for energy conservation measures.

Exclusion of Subsidies for Energy Conservation Measures

You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Reduce the basis of the property for which you received the subsidy by the excluded amount. For more information about this subsidy, see chapter 13.

Taxmap/pub17/p17-075.htm#TXMP6f7705ed Postponed gain from sale of home.

Postponed gain from sale of home.

If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. For more information on the rules for the sale of a home, see chapter 16.

Previous Page:  Publication 17 - Your Federal Income Tax - Basis of Property Next Page:  Publication 17 - Your Federal Income Tax - Basis Other Than Cost Use     to find additional instances of index items.