As the end of the year approaches, your tax plan might involve selling assets to take advantage of beneficial capital gain rates, which can be as low as zero percent for 2011. The success of your planning efforts depends in part on knowing your investment in the property you’re selling. In tax terms, that’s your basis, which is used to calculate your gain or loss.
While new rules require your broker to provide certain basis amounts to you on the annual statement you’ll receive early next year, you’ll need additional information about other assets.
And since tax basis is affected by how you acquired the property — and in some cases, on events that happened afterward — the determination may not be straightforward.
For example, your original basis in shares of stock you purchase is generally what you paid for those shares. Yet factors such as wash sales or dividend reinvestments can change your original basis and affect your gain or loss.
In the case of assets you inherit, cost is not a factor in figuring your basis. Instead, you need to know the fair market value of the assets, either on the date of death or six months later. Special rules can apply to assets inherited during 2010, depending on elections made by the personal representative of the estate.
Basis may also be adjusted for tax benefits you receive, including credits and depreciation.
Give us a call. We’ll help you figure out what basis rules apply to your asset sales.
The post Tax Tip Tuesday! What's Your Basis? appeared first on Thaney & Associates.
