Friday, January 27, 2012

Cost vs Basis

Q.  My tax forms keep referring to "basis." Isn't this the same as my cost?

A.  Good question! Quite often your cost and basis will be the same, but sometimes not. For example, when you purchase real property, your cost is increased by capital improvements, and decreased by the amount of depreciation taken, if any. For securities, your cost may be reduced by the amount of principal payments (if any) you receive in lieu of dividends. Although this is a super simple example, your basis in property usually makes common sense. If in doubt, call up your income tax advisor.

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