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Basis (in an Asset)

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Definition:

The basis in a business asset is the cost of that asset. The cost includes the purchase price, shipping, installation, and other services associated with the asset.

Knowing the basis of an asset, and including all aspects of the purchase of that asset is important for two purposes:

  • Capital gains. Capital gains taxes are based on the gain in price of the asset from the original cost of purchase (the basis), so a higher basis can mean lower capital gains tax.
  • Depreciation. Depreciation is the cost of an asset spread out over its useful life. These costs are considered business expenses, so the higher the cost (basis), the more you deduct as an expense.
It's important to capture all of the costs included in the purchase of an asset, to turn over to your tax preparer to determine the basis and calculate capital gains taxes when the asset is sold and depreciation during the time you own the asset.

More information on
Depreciating Business Assets
Capital Gains and Capital Gains Taxes

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