(b) depreciation with respect to the asset.
- ADJUSTED BASIS
- during the time that a taxpayer holds an asset, certain events require that the taxpayer adjust (either up or down) his/her original basis – to reflect the event, thus resulting in an adjusted basis. In general, depreciation deductions – that are allowable in a taxable year with respect to an asset – reduce the taxpayer’s basis in the asset. However, if the taxpayer made a CAPITAL EXPENDITURE [for the asset], then the amount of the expenditure would increase the taxpayer’s basis
- CARRYOVER/SUBSTITUTED BASIS
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in certain cases a taxpayer’s basis is computed by reference to the basis of the property when held by the previous owner – or to the basis of the property exchanged for the assets. In both of these situations, the taxpayer’s basis is said to be a carryover basis.
For example, if a taxpayer received a gift of property, his basis in the property is the transferor’s basis in the property. In other words, the transferor’s basis carries over to the taxpayer. - RECOVERY OF BASIS
- the process by which a taxpayer recovers the basis through distributions (or payments) with respect to the property
- STEP-UP BASIS
- the process by which a taxpayer’s basis is increased to a certain level (usually fair market value) as of a certain date. Such a basis is generally available for property received by an heir from a decedent.
