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Basis
The term Basis, for income tax purposes, is used mainly in connection with determining the amount of gain or loss on a sale of property or in computing depreciation. It represents the cost of the property to the taxpayer, actually or contructively, but it has a broader meaning than the term cost. The basis (adjusted) of property is deducted from the amount realized to determine the realized gain or loss on its sale. If the property was acquired by the taxpayer through a purchase, the basis is its cost, except in special circumstances such as in the conversion of the property from personal to rental or other business purposes, in which case the basis for loss and for depreciation may be different from the basis for gain. If the property was acquired as gift property, inherited property, property received in an exchange, etc. then special rules for finding basis apply.