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Monday, May 11, 2015

Figuring the Cost Basis of a Capital Asset

What is The Cost Basis of a Capital Asset?

 Cost basis includes the fair market value of the property given. If the fair market value of the property given cannot be determined with any reasonable certainty, the fair market value of the property received is used.

Cost basis of an asset also includes the expenditures made in cash (or equivalent)/assumption of liability.

If there is a rebate given to the purchasing party, consider that a reduction of the purchase price. Do not include the rebate as part of the basis of the property, nor the gross income of the entity, simply reduce the sales price by the rebate to figure the cost of acquisition.

The property basis is increased if there are notes to the seller (less unstated interest) and/or liabilities.

 The cost basis of a capital asset can be figured in the following formula
Cost basis = The sum of the capitalized acquisition costs
Initial basis = the cost of the acquisition