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How is Tax basis calculated; increases and decreases? GAAP?

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Please help answer the following questions.

How is basis determined?
What events can adjust basis up or down?
How does tax basis differ from GAAP accounting basis?

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Solution Summary

This posting answers questions regarding how basis is determined, the events that adjust basis up or down, and how tax basis differs from GAAp accounting basis. The solution examines basis with use of examples. The response lists four circumstances which cause basis to be adjusted followed by five examples where tax basis differs from GAAP basis. The explanation is given in 306 words.

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How is basis determined?

Basis is calculated as the total cost of an asset including sales tax, freight, installation costs, title transfer and any other costs needed to put an asset into service. That is the classic definition of the cost of an asset. If it is a self-constructed asset, careful records are maintained to compute total cost. In this case, labor, materials and even certain overhead allocations could contribute to the total cost of ...

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