Question

The notion of basis is crucially important in determining the tax consequences that result from virtually any property-based transactions, whether it is the sale of $100 of stock, or a $10,000,000,000 merger of two multinational corporations. It's important, then, to answer one key question: What exactly is basis? How is it used in calculating the gain or loss that results from the sale of capital property? What is the rationale or justification for considering basis in calculating the amount of gain or loss?

Answer 1

Basis :

Basis means anything upo whichsomething is based ( like fundamental principles ) . It is generally the amount of capital investment in property for tax purposes.

Basis is used to figure any loss or gain on sale , exchange , deprecation , depletion , casualty loss. Basis of an asset is its cost to you.

Basis for calculating the gain or loss that results from the sale of capital property is cost basis. The cost basis value is used in the calculation of capital gains or losses, which is the difference between the selling price and purchase price

The basis may be increased by the value of capital investment or decreased by transactional events that recoup part of the original purchase price.

The IRS requires the first-in, first-out (FIFO) method for calculating taxes and cost basis, meaning the oldest holdings get sold first.

The need to track the cost basis for investment is needed mainly for tax purposes.