When we think of income taxes, we think of how much we earn. But, another aspect of income tax is the gain or loss on assets. Income tax basis is central to how assets are taxed in the United States. This is the first of a series on income tax basis. This blog will examine income tax basis, how you get it, and how it gets adjusted. The next article will look at how income tax basis is important in estate planning.
Let’s look at the life of an asset and its income tax basis during that life. Mary bought a house for $300,000. This cost basis is the starting point of her income tax basis. If she makes certain improvements, such as a room addition or other capital improvements, these add to her basis. Let’s say she adds a bathroom for $50,000. Now her basis is $350,000.
Read more: https://www.aaepa.com/2019/09/income-tax-basis/