What is the basis of inherited property?

Inherited property generally takes a basis equal to its fair market value at the decedent's date of death — a "step-up" (or step-down) that can eliminate pre-death appreciation for the heir. Confirm current rules, as they can change.

How does depreciation affect basis?

Depreciation reduces adjusted basis over time. Because gain or loss equals amount realized minus adjusted basis, accumulated depreciation increases the gain recognized on a later sale.

Tax Basis Basics (CPA REG)

Basis is the backbone of property transactions on CPA REG. Get basis right and gain, loss, and depreciation follow almost mechanically. [VERIFY all rules below against current U.S. tax law before relying on them.]

What basis is

Basis is your investment in property for tax purposes. Gain or loss on a sale is simply:

Gain or loss = Amount realized − Adjusted basis

So errors in basis flow straight into the taxable result.

How basis is established

Purchased property: basis is cost — the purchase price plus acquisition costs (commissions, legal fees, freight, installation).
Gifted property: generally a carryover basis — the donor's basis transfers to you. A special dual-basis rule applies when the property's fair market value at the gift date is below the donor's basis, affecting whether you compute a gain or a loss on later sale.
Inherited property: generally a stepped-up (or stepped-down) basis to the property's fair market value at the date of death, which can erase pre-death appreciation for the heir.

Adjusted basis

Basis is not static. It increases for capital improvements and decreases for depreciation, depletion, and amortization. Depreciation is itself computed on basis, so the two are linked: more basis means larger depreciation deductions and a different gain on eventual sale.

Why the exam loves basis

Basis ties together property transactions, depreciation (MACRS), like-kind exchanges, and gain/loss character. A single simulation can chain all of these, so a shaky grasp of basis compounds into multiple lost points.

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Educational overview only. U.S. tax rules change frequently — verify against current law and IRS guidance. Not affiliated with AICPA.