Figuring Cost Basis

Figuring basis of property for services

If you received property for your services, include the property' s fair market value in income. The amount you include in income becomes your basis. If the services were performed for a price agreed on beforehand, the price will be accepted as the fair market value of the property if there is no evidence to the contrary.

Figuring basis of property inherited

Your basis in property you inherit from a decedent is generally one of the following:

• the fair market value of the property at the date of the individual's death

   

• the fair market value on the alternate valuation date, if the personal representative for the estate chooses to use alternate valuation.

Figuring basis of property received as gift

To figure the basis of property you receive as a gift, you must know its adjusted basis of the donor just before it was given to you. You also must know its fair market value at the time it was given to you and any gift tax paid on it. If, at the time the gift was given to you, its fair market value was more than the donor's basis, you must use the donor's basis for figuring a gain or loss.

If, at the time the gift was given to you, its fair market value was less than the donor's basis, you must use the donor's basis for a gain and the fair market value for a loss. This rule limits the loss you can take when you sell property that you received as a gift.

Figuring basis for rental property

When you hold property for personal use and then change it to business or rental use, you must figure its basis for depreciation. an example of changing property held for personal use to business use would be renting out your former main home. The basis for depreciation is the lesser of the following amounts: the fair market value of the property on the date of the change or the adjusted basis on the date of the change.