Practical Law Glossary Item 5-382-3262 (Approx. 3 pages)
Also known as tax basis. The amount of a taxpayer's investment in property for tax purposes.
The basis of purchased property is usually its cost plus certain expenses (referred to as a cost basis). If property is acquired by gift, inheritance, in a tax-free reorganization or in some way other than purchasing it, the property will have a basis other than its cost (for example, see carryover basis).
Basis is often increased or decreased for various tax-related items. The result of these adjustments to the basis is the adjusted basis. A taxpayer needs to know its basis (or adjusted basis if applicable) to figure any gain or loss on the sale or other disposition of the property or any allowable depreciation, depletion or amortization deductions.
For more on the importance of basis in mergers and acquisitions, see Practice Notes: