What is the basis of cost, and how will you find it?
You 're a long way on your tax return, when suddenly, you must enter what is called a "base cost" for an asset. If only it was that easy to remember what you paid for the asset.
Here are 7 questions and answers on the basis of cost to help you complete your return quickly and accurately.
when do I know the cost basis of an asset?
you need the base cost of an asset when you apply for credit or other tax relief the base of the asset, or when you deduct the depreciation of assets.
you will also need to know your cost basis when you sell or trade an asset to determine your gain or loss on sale or based on new assets acquired by trade.
How can I find the original cost basis of something that I purchased?
Search your receipt or other record of purchase, such as a credit card statement or canceled check. If the asset is real estate, you should have closing documents. For stocks and other securities, locate your brokerage statement.
If you have purchased shares on 1 January 2011 or later, your brokerage firm keeps track of the base stock for you. For mutual funds and similar investments, they keep track of your purchases on 1 January 2012.
or afterIf you bought the securities prior to these dates, find your brokerage statements for the year you purchased the stock. You may also be able to find information online, or you can call your broker.
Is the basis of costs include sales tax and shipping?
Sales tax and shipping are considered part of the cost of an item.
What if I inherited an asset?
When you inherit something, be it a car, real estate, or a mutual fund, your basis is usually the property value at the date of death of the person. If she disappeared in value since then and you sell, you may have a gain.
If the personal representative of the estate elects to use another date, your cost basis is the fair market value at that later date. Ask the personal representative if you are unsure.
Special rules may apply to inherited farmland or a closely held business, or if the person died in 2010.
I got a compromise when I bought this car. What is my base?
If you trade in a car or truck, your basis in the new vehicle is your base in the former, the higher the amount you paid to trade.
For example, say you have a car with a base of $ 2,000. You trade in a new car, and you pay $ 20,000 in cash. The foundation of your new car is $ 22,000 ($ 2,000 + 20,000 = $ 22,000).
I sold mutual fund investment last year. Should I adjust my base?
When you own mutual funds, you can pay tax on reinvested dividends and capital gains as you own the fund. You do not want to pay tax on dividends and earnings again when you sell the fund units of investment.
Be sure to increase your share of mutual fund investment base by the amount of dividends and earnings on which you paid tax.
What are the other reasons that I might need to adjust my cost base?
If the stock splits, and you sell less than 100% of your shares of a stock, you'll need to adjust your cost basis for the split so you can correctly calculate your cost basic. The same is true if the stock has an inverse split.
You must reduce your cost basis of the tax benefits that you receive. For example, your depreciation deductions over the years to reduce your basis in the property investment.
To adjust your cost basis for depreciation, look at your tax returns from the year you bought an asset. Add all depreciation taken for the assets, and reduce your basis by that amount.
I sold some of my shares in a company, which I bought at different times and at different prices. How do I know which stock I sold?
If you sold only a portion of your shares in a company, but you have not told your stock broker who sold you, by default you are using the first in first -out method, known under the name FIFO.
IRS requires you to assume that you have sold your oldest stock, which could unfortunately be those with the most economic base. This may not be the best tax result for you.
If you prefer to sell additional shares of a particular company, you need to tell your broker in advance. You should also get a confirmation from your broker saying the stock you sold.
Do you keep receipts for major purchases in a folder or a designated place?
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