How is the basis of an asset determined for calculating gain or loss on sale?

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Multiple Choice

How is the basis of an asset determined for calculating gain or loss on sale?

Basis is the tax cost of the asset used to measure gain or loss on sale. You start with what you paid for the asset, add any capital improvements you’ve made, and subtract any depreciation deductions you’ve claimed for the asset. This adjusted basis is then compared to the amount you receive from selling the asset to determine gain or loss. The amount realized from the sale (the selling price) is not the basis itself, and simply using the purchase price or fair market value at purchase misses important adjustments that change tax consequences. For many depreciable assets, depreciation lowers the basis over time, which can increase the taxable gain when you sell.

Basis is the tax cost of the asset used to measure gain or loss on sale. You start with what you paid for the asset, add any capital improvements you’ve made, and subtract any depreciation deductions you’ve claimed for the asset. This adjusted basis is then compared to the amount you receive from selling the asset to determine gain or loss. The amount realized from the sale (the selling price) is not the basis itself, and simply using the purchase price or fair market value at purchase misses important adjustments that change tax consequences. For many depreciable assets, depreciation lowers the basis over time, which can increase the taxable gain when you sell.

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