What is the tax base?

Tax base is usually the cost of purchasing capital asset, less of any previous depreciation previously required. Capital assets are assets that the company has purchased and will use for more than a year. Since they are used more than for a normal year, the cost of purchase must be deducted for their usable life. This is done using the selected depreciation method.

There are some other factors that affect the tax base. For example, the basis of shares or bonds would include not only the purchase price, but also the cost of purchasing, including commissions and transfer fees. In addition, the foundation for the property would include the costs of closing or settlement involved in transactions. However, credit costs such as fees on the assumption of loan, points or refinancing fees must be capitalized, which means that it is deducted for more than the season. This increases by any improvement that extends the life of the asset. Items that reduce the tax base,would include things such as section 179, which requires deducting part of the cost except for the permitted depreciation in the first year; annual depreciation; and certain tax loans.

Business can also participate in what is called a similar exchange. This means that the company exchange business asset for another business asset from another company. In this case, the tax base for the newly acquired asset will be the same as the item, minus any other money that has been received, or plus any money that has been given up. If no money or items are exchanged than the property is similar, then no company has a taxable transaction.

In cases where the item was a gift, the tax base of the IS assets usually a modified base of the donor or a donor base before the gift. In the case of inherited assets, the tax base in the asset is the real market value of the property on the date of the decedent. This would be determinedestimated value at a time when the asset is inherited. However, if the recipient originally gave the decedent assets within one year of his death, the tax base would be the same as the basis of this individual at the time of death.