Publication 551 (Rev. December 2022)

Contents

Future Developments ............ 1

What’s New .................. 1

Reminder .................... 1

Introduction .................. 2

Cost Basis ................... 2

Stocks and Bonds ............ 2

Real Property ............... 2

Business Assets ............. 3

Allocating the Basis ........... 4

Adjusted Basis ................ 4

Increases to Basis ............ 5

Decreases to Basis ........... 5

Basis Other Than Cost ........... 7

Property Received for Services ..... 7

Taxable Exchanges ........... 7

Nontaxable Exchanges ......... 8

Property Transferred From a

Spouse ................ 9

Property Received as a Gift ....... 9

Inherited Property ........... 10

Property Changed to Business

or Rental Use ............ 10

How To Get Tax Help ........... 11

Glossary ................... 13

Index ..................... 15

Future Developments

For the latest information about developments

related to Pub. 551, such as legislation enacted

after this publication was published, go to

IRS.gov/Pub551.

What’s New

Uniform capitalization rules. For tax years

beginning in 2022, small businesses are not

subject to the uniform capitalization rules if the

average annual gross receipts are $27 million

or less for the 3 preceding tax years and the

business isn't a tax shelter. See Uniform Capi-

talization Rules, later.

Reminder

Photographs of missing children. The Inter-

nal Revenue Service is a proud partner with the

National Center for Missing & Exploited

Children® (NCMEC). Photographs of missing

children selected by the Center may appear in

this publication on pages that would otherwise

be blank. You can help bring these children

home by looking at the photographs and calling

1-800-THE-LOST (1-800-843-5678) if you rec-

ognize a child.

Department

of the

Treasury

Internal

Revenue

Service

Publication 551

(Rev. December 2022)

Cat. No. 15094C

Basis of Assets

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Introduction

Basis is the amount of your investment in prop-

erty for tax purposes. Use the basis of property

to figure depreciation, amortization, depletion,

and casualty losses. Also use it to figure gain or

loss on the sale or other disposition of property.

You must keep accurate records of all items

that affect the basis of property so you can

make these computations.

This publication is divided into the following

sections.

•

Cost Basis

•

Adjusted Basis

•

Basis Other Than Cost

The basis of property you buy is usually its

cost. You may also have to capitalize (add to

basis) certain other costs related to buying or

producing the property.

Your original basis in property is adjusted

(increased or decreased) by certain events. If

you make improvements to the property, in-

crease your basis. If you take deductions for de-

preciation or casualty losses, reduce your ba-

sis.

You can't determine your basis in some as-

sets by cost. This includes property you receive

as a gift or inheritance. It also applies to prop-

erty received in an involuntary conversion and

certain other circumstances.

Comments and suggestions. We welcome

your comments about this publication and sug-

gestions for future editions.

You can send us comments through

IRS.gov/FormComments Or, you can write to

the Internal Revenue Service, Tax Forms and

Publications, 1111 Constitution Ave. NW,

IR-6526, Washington, DC 20224.

Although we can’t respond individually to

each comment received, we do appreciate your

feedback and will consider your comments and

suggestions as we revise our tax forms, instruc-

tions, and publications. Don’t send tax ques-

tions, tax returns, or payments to the above ad-

dress.

Getting answers to your tax questions.

If you have a tax question not answered by this

publication or the How To Get Tax Help section

at the end of this publication, go to the IRS In-

teractive Tax Assistant page at IRS.gov/

Help/ITA where you can find topics by using the

search feature or viewing the categories listed.

Getting tax forms, instructions, and pub

lications. Go to IRS.gov/Forms to download

current and prior-year forms, instructions, and

publications.

Ordering tax forms, instructions, and

publications. Go to IRS.gov/OrderForms to

order current forms, instructions, and publica-

tions; call 800-829-3676 to order prior-year

forms and instructions. The IRS will process

your order for forms and publications as soon

as possible. Don’t resubmit requests you’ve al-

ready sent us. You can get forms and publica-

tions faster online.

Useful Items

You may want to see:

Publication

463 Travel, Gift, and Car Expenses

523 Selling Your Home

525 Taxable and Nontaxable Income

527 Residential Rental Property

530 Tax Information for Homeowners

535 Business Expenses

537 Installment Sales

544 Sales and Other Dispositions of

Assets

547 Casualties, Disasters, and Thefts

550 Investment Income and Expenses

559 Survivors, Executors, and

Administrators

587 Business Use of Your Home

946 How To Depreciate Property

Form (and Instructions)

706 United States Estate (and

Generation-Skipping Transfer) Tax

Return

706-A United States Additional Estate Tax

Return

8594 Asset Acquisition Statement

See How To Get Tax Help near the end of this

publication for information about getting publi-

cations and forms.

Cost Basis

Terms you may need to know

(see Glossary):

Business assets

Real property

Unstated interest

The basis of property you buy is usually its cost.

The cost is the amount you pay in cash, debt

obligations, other property, or services. Your

cost also includes amounts you pay for the fol-

lowing items.

•

Sales tax.

•

Freight.

•

Installation and testing.

•

Excise taxes.

•

Legal and accounting fees (when they

must be capitalized).

•

Revenue stamps.

•

Recording fees.

•

Real estate taxes (if assumed for the

seller).

You may also have to capitalize (add to basis)

certain other costs related to buying or produc-

ing property.

Loans with low or no interest. If you buy

property on a time-payment plan that charges

little or no interest, the basis of your property is

463

523

525

527

530

535

537

544

547

550

559

587

946

706

706-A

8594

your stated purchase price, minus the amount

considered to be unstated interest. You gener-

ally have unstated interest if your interest rate is

less than the applicable federal rate. For more

information, see Unstated Interest and Original

Issue Discount in Pub. 537.

Purchase of a business. When you purchase

a trade or business, you generally purchase all

assets used in the business operations, such as

land, buildings, and machinery. Allocate the

price among the various assets, including any

section 197 intangibles. See Allocating the Ba-

sis, later.

Stocks and Bonds

The basis of stocks or bonds you buy is gener-

ally the purchase price plus any costs of pur-

chase, such as commissions and recording or

transfer fees. If you get stocks or bonds other

than by purchase, your basis is usually deter-

mined by the fair market value (FMV) or the pre-

vious owner's adjusted basis of the stock.

You must adjust the basis of stocks for cer-

tain events that occur after purchase. See

Stocks and Bonds in chapter 4 of Pub. 550 for

more information on the basis of stock.

Identifying stock or bonds sold. If you can

adequately identify the shares of stock or the

bonds you sold, their basis is the cost or other

basis of the particular shares of stock or bonds.

If you buy and sell securities at various times in

varying quantities and you can't adequately

identify the shares you sell, the basis of the se-

curities you sell is the basis of the securities you

acquired first. For more information about iden-

tifying securities you sell, see Stocks and

Bonds under Basis of Investment Property in

chapter 4 of Pub. 550.

Mutual fund shares. If you sell mutual fund

shares acquired at different times and prices,

you can choose to use an average basis. For

more information, see Pub. 550.

Real Property

Real property, also called real estate, is land

and generally anything built on or attached to it.

If you buy real property, certain fees and other

expenses become part of your cost basis in the

property.

Real estate taxes. If you pay real estate taxes

the seller owed on real property you bought,

and the seller didn't reimburse you, treat those

taxes as part of your basis. You can't deduct

them as taxes.

If you reimburse the seller for taxes the

seller paid for you, you can usually deduct that

amount as an expense in the year of purchase.

Don't include that amount in the basis of the

property. If you didn't reimburse the seller, you

must reduce your basis by the amount of those

taxes.

Settlement costs. Your basis includes the set-

tlement fees and closing costs for buying prop-

erty. You can't include in your basis the fees

and costs for getting a loan on property. A fee

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Page 2 Publication 551 (December 2022)

for buying property is a cost that must be paid

even if you bought the property for cash.

The following items are some of the settle-

ment fees or closing costs you can include in

the basis of your property.

•

Abstract fees (abstract of title fees).

•

Charges for installing utility services.

•

Legal fees (including title search and prep-

aration of the sales contract and deed).

•

Recording fees.

•

Surveys.

•

Transfer taxes.

•

Owner's title insurance.

•

Any amounts the seller owes that you

agree to pay, such as back taxes or inter-

est, recording or mortgage fees, charges

for improvements or repairs, and sales

commissions.

Settlement costs don't include amounts

placed in escrow for the future payment of items

such as taxes and insurance.

The following items are some settlement

fees and closing costs you can't include in the

basis of the property.

1. Casualty insurance premiums.

2. Rent for occupancy of the property before

closing.

3. Charges for utilities or other services rela-

ted to occupancy of the property before

closing.

4. Charges connected with getting a loan.

The following are examples of these

charges.

a. Points (discount points, loan origina-

tion fees).

b. Mortgage insurance premiums.

c. Loan assumption fees.

d. Cost of a credit report.

e. Fees for an appraisal required by a

lender.

5. Fees for refinancing a mortgage.

If these costs relate to business property, items

(1) through (3) are deductible as business ex-

penses. Items (4) and (5) must be capitalized

as costs of getting a loan and can be deducted

over the period of the loan.

Points. If you pay points to obtain a loan (in-

cluding a mortgage, second mortgage, line of

credit, or a home equity loan), don't add the

points to the basis of the related property. Gen-

erally, you deduct the points over the term of

the loan. For more information on how to deduct

points, see Points in chapter 4 of Pub. 535.

Points on home mortgage. Special rules

may apply to points you and the seller pay

when you obtain a mortgage to purchase your

main home. If certain requirements are met, you

can deduct the points in full for the year in which

they're paid. Reduce the basis of your home by

any seller-paid points. For more information,

see Points in Pub. 936, Home Mortgage Inter-

est Deduction.

Assumption of mortgage. If you buy property

and assume (or buy subject to) an existing

mortgage on the property, your basis includes

the amount you pay for the property plus the

amount to be paid on the mortgage.

Example. If you buy a building for $20,000

cash and assume a mortgage of $80,000 on it,

your basis is $100,000.

Constructing assets. If you build property or

have assets built for you, your expenses for this

construction are part of your basis. Some of

these expenses include the following costs.

•

Land.

•

Labor and materials.

•

Architect's fees.

•

Building permit charges.

•

Payments to contractors.

•

Payments for rental equipment.

•

Inspection fees.

In addition, if you own a business and use your

employees, material, and equipment to build an

asset, don't deduct the following expenses. You

must include them in the asset's basis.

•

Employee wages paid for the construction

work, reduced by any employment credits

allowed.

•

Depreciation on equipment you own while

it's used in the construction.

•

Operating and maintenance costs for

equipment used in the construction.

•

The cost of business supplies and materi-

als used in the construction.

Don't include the value of your own la-

bor, or any other labor you didn't pay

for, in the basis of any property you

construct.

Business Assets

Terms you may need to know

(see Glossary):

Amortization

Capitalization

Depletion

Depreciation

Fair market value (FMV)

Going concern value

Goodwill

Intangible property

Modified Accelerated Cost Recovery

System (MACRS) property

Personal property

Recapture

Section 179 deduction

Section 197 intangibles

Tangible property

If you purchase property to use in your busi-

ness, your basis is usually its actual cost to you.

If you construct, create, or otherwise produce

property, you must capitalize the costs as your

basis. In certain circumstances, you may be

subject to the uniform capitalization rules (dis-

cussed next).

Uniform Capitalization Rules

The uniform capitalization rules specify the

costs you add to basis in certain circumstances.

CAUTION

Activities subject to the rules. You must use

the uniform capitalization rules if you do any of

the following in your trade or business or activity

carried on for profit. However, see Exceptions

below.

•

Produce real or tangible personal property

for use in the business or activity.

•

Produce real or tangible personal property

for sale to customers.

•

Acquire property for resale.

You produce property if you construct, build,

install, manufacture, develop, improve, create,

raise, or grow the property. Treat property pro-

duced for you under a contract as produced by

you up to the amount you pay or costs you oth-

erwise incur for the property. Tangible personal

property includes films, sound recordings, video

tapes, books, or similar property.

Under the uniform capitalization rules, you

must capitalize all direct costs and an allocable

part of most indirect costs you incur due to your

production or resale activities. To capitalize

means to include certain expenses in the basis

of property you produce or in your inventory

costs rather than deduct them as a current ex-

pense. You recover these costs through deduc-

tions for depreciation, amortization, or cost of

goods sold when you use, sell, or otherwise dis-

pose of the property.

Any cost you can't use to figure your taxable

income for any tax year isn't subject to the uni-

form capitalization rules.

Example. If you incur a business meal ex-

pense for which your deduction would be limi-

ted to 50% of the cost of the meal, that amount

is subject to the uniform capitalization rules.

The nondeductible part of the cost isn't subject

to the uniform capitalization rules.

More information. For more information about

these rules, see the regulations under section

263A of the Internal Revenue Code and Pub.

538, Accounting Periods and Methods.

Exceptions. For tax years beginning in 2022,

you're not subject to the uniform capitalization

rules if your average annual gross receipts are

$27 million or less for the 3 preceding tax years

and you're not a tax shelter. See section

263A(i).

In addition, the following are not subject to

the uniform capitalization rules.

•

Property you produce that you don't use in

your trade, business, or activity conducted

for profit.

•

Qualified creative expenses you pay or in-

cur as a freelance (self-employed) writer,

photographer, or artist that are otherwise

deductible on your tax return.

•

Property you produce under a long-term

contract, except for certain home construc-

tion contracts.

•

Research and experimental expenses de-

ductible under section 174 of the Internal

Revenue Code.

•

Before 2018, costs for personal property

acquired for resale if your (or your prede-

cessor's) average annual gross receipts for

the 3 previous tax years don't exceed $10

million.

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Publication 551 (December 2022) Page 3

For other exceptions to the uniform capitaliza-

tion rules, see section 1.263A-1(b) of the regu-

lations.

For information on the special rules that ap-

ply to costs incurred in the business of farming,

see chapter 6 in Pub. 225, Farmer's Tax Guide.

Intangible Assets

Intangible assets include goodwill, patents,

copyrights, trademarks, trade names, and

franchises. The basis of an intangible asset is

usually the cost to buy or create it. If you ac-

quire multiple assets, for example, an ongoing

business for a lump sum, see Allocating the Ba-

sis, later, to figure the basis of the individual as-

sets. The basis of certain intangibles can be

amortized. See chapter 8 of Pub. 535 for infor-

mation on the amortization of these costs.

Patents. The basis of a patent you get for an

invention is the cost of development, such as

research and experimental expenditures, draw-

ings, working models, and attorneys' and gov-

ernmental fees. If you deduct the research and

experimental expenditures as current business

expenses, you can't include them in the basis of

the patent. The value of the inventor's time

spent on an invention isn't part of the basis.

Copyrights. If you're an author, the basis of a

clerical assistance, and the cost of plates that

remain in your possession. Don't include the

value of your time as the author, or any other

person's time you didn't pay for.

Franchises, trademarks, and trade names.

If you buy a franchise, trademark, or trade

name, the basis is its cost, unless you can de-

duct your payments as a business expense.

Allocating the Basis

If you buy multiple assets for a lump sum, allo-

cate the amount you pay among the assets you

receive. You must make this allocation to figure

your basis for depreciation and gain or loss on a

later disposition of any of these assets. See

Trade or Business Acquired below.

Group of Assets Acquired

If you buy multiple assets for a lump sum, you

and the seller may agree to a specific allocation

of the purchase price among the assets in the

sales contract. If this allocation is based on the

value of each asset and you and the seller have

adverse tax interests, the allocation will gener-

ally be accepted. However, see Trade or Busi-

ness Acquired next.

Trade or Business Acquired

If you acquire a trade or business, allocate the

consideration paid to the various assets ac-

quired. Generally, reduce the consideration

paid by any cash and general deposit accounts

(including checking and savings accounts) re-

ceived. Allocate the remaining consideration to

the other business assets received in propor-

tion to (but not more than) their FMV in the fol-

lowing order.

1. Certificates of deposit, U.S. government

securities, foreign currency, and actively

traded personal property, including stock

and securities.

2. Accounts receivable, other debt instru-

ments, and assets you mark to market at

least annually for federal income tax pur-

poses.

3. Property of a kind that would properly be

included in inventory if on hand at the end

of the tax year or property held primarily

for sale to customers in the ordinary

course of business.

4. All other assets except section 197 intan-

gibles, goodwill, and going concern value.

5. Section 197 intangibles except goodwill

and going concern value.

6. Goodwill and going concern value

(whether or not they qualify as section 197

intangibles).

Agreement. The buyer and seller may enter

into a written agreement as to the allocation of

any consideration or the FMV of any of the as-

sets. This agreement is binding on both parties

unless the IRS determines the amounts are not

appropriate.

Reporting requirement. Both the buyer and

seller involved in the sale of business assets

must report to the IRS the allocation of the sales

price among section 197 intangibles and the

other business assets. Use Form 8594 to pro-

vide this information. The buyer and seller

should each attach Form 8594 to their federal

income tax return for the year in which the sale

occurred.

More information. See Sale of a Business in

chapter 2 of Pub. 544 for more information.

Land and Buildings

If you buy buildings and the land on which they

stand for a lump sum, allocate the basis of the

property among the land and the buildings so

you can figure the depreciation allowable on the

buildings.

Figure the basis of each asset by multiplying

the lump sum by a fraction. The numerator is

the FMV of that asset and the denominator is

the FMV of the whole property at the time of

purchase. If you're not certain of the FMV of the

land and buildings, you can allocate the basis

based on their assessed values for real estate

tax purposes.

Demolition of building. Add demolition costs

and other losses incurred for the demolition of

any building to the basis of the land on which

the demolished building was located. Don't

claim the costs as a current deduction.

Modification of building. A modification of

a building won't be treated as a demolition if

both the following conditions are satisfied.

•

75% or more of the existing external walls

of the building are retained in place as in-

ternal or external walls.

•

75% or more of the existing internal struc-

tural framework of the building is retained

in place.

If the building is a certified historic structure,

the modification must also be part of a certified

rehabilitation.

If these conditions are met, add the costs of

the modifications to the basis of the building.

Subdivided lots. If you buy a tract of land and

subdivide it, you must determine the basis of

each lot. This is necessary because you must

figure the gain or loss on the sale of each indi-

vidual lot. As a result, you don't recover your

entire cost in the tract until you have sold all of

the lots.

To determine the basis of an individual lot,

multiply the total cost of the tract by a fraction.

The numerator is the FMV of the lot and the de-

nominator is the FMV of the entire tract.

Future improvement costs. If you're a de-

veloper and sell subdivided lots before the de-

velopment work is completed, you can (with

IRS consent) include in the basis of the proper-

ties sold an allocation of the estimated future

cost for common improvements. See Revenue

Procedure 92-29, 1992-1 C.B. 748, for more in-

formation, including an explanation of the pro-

cedures for getting consent from the IRS.

Use of erroneous cost basis. If you made

a mistake in figuring the cost basis of subdivi-

ded lots sold in previous years, you can't cor-

rect the mistake for years for which the statute

of limitations (generally, 3 tax years) has ex-

pired. Figure the basis of any remaining lots by

allocating the correct original cost basis of the

entire tract among the original lots.

Example. You bought a tract of land to

which you assigned a cost of $15,000. You sub-

divided the land into 15 building lots of equal

size and equitably divided your basis so that

each lot had a basis of $1,000. You treated the

sale of each lot as a separate transaction and

figured gain or loss separately on each sale.

Several years later, you determine that your

original basis in the tract was $22,500 and not

$15,000. You sold eight lots using $8,000 of ba-

sis in years for which the statute of limitations

has expired. You now can take $1,500 of basis

into account for figuring gain or loss only on the

sale of each of the remaining seven lots

($22,500 basis divided among all 15 lots). You

can't refigure the basis of the eight lots sold in

tax years barred by the statute of limitations.

Adjusted Basis

Before figuring gain or loss on a sale, ex-

change, or other disposition of property, or fig-

uring allowable depreciation, depletion, or am-

ortization, you must usually make certain

adjustments to the basis of the property. The re-

sult of these adjustments to the basis is the ad-

justed basis.

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Page 4 Publication 551 (December 2022)

Increases to Basis

Increase the basis of any property by all items

properly added to a capital account. These in-

clude the cost of any improvements having a

useful life of more than 1 year.

Rehabilitation expenses also increase basis.

However, you must subtract any rehabilitation

credit allowed for these expenses before you

add them to your basis. If you have to recapture

any of the credit, increase your basis by the re-

captured amount.

If you make additions or improvements to

business property, keep separate accounts for

them. Also, you must depreciate the basis of

each according to the depreciation rules that

would apply to the underlying property if you

had placed it in service at the same time you

placed the addition or improvement in service.

For more information, see Pub. 946.

The following items increase the basis of

property.

•

The cost of extending utility service lines to

the property.

•

Impact fees.

•

Legal fees, such as the cost of defending

and perfecting title.

•

Legal fees for obtaining a decrease in an

assessment levied against property to pay

for local improvements.

•

Zoning costs.

•

The capitalized value of a redeemable

ground rent.

Assessments for

Local Improvements

Increase the basis of property by assessments

for items such as paving roads and building

ditches that increase the value of the property

assessed. Don't deduct them as taxes. How-

ever, you can deduct as taxes charges for

maintenance, repairs, or interest charges rela-

ted to the improvements.

Example. Your city changes the street in

front of your store into an enclosed pedestrian

mall and assesses you and other affected land-

owners for the cost of the conversion. Add the

assessment to your property's basis. In this ex-

ample, the assessment is a depreciable asset.

Deducting vs. Capitalizing Costs

Don't add to your basis costs you can deduct as

current expenses. For example, amounts paid

for incidental repairs or maintenance that are

deductible as business expenses can't be

added to basis. However, you can choose ei-

ther to deduct or to capitalize certain other

costs. If you capitalize these costs, include

them in your basis. If you deduct them, don't in-

clude them in your basis. See Uniform Capitali-

zation Rules, earlier.

The costs you can choose to deduct or to

capitalize include the following.

•

Carrying charges, such as interest and

taxes, that you pay to own property, except

carrying charges that must be capitalized

under the uniform capitalization rules.

•

Research and experimentation costs.

•

Intangible drilling and development costs

for oil, gas, and geothermal wells.

•

Exploration costs for new mineral deposits.

•

Mining development costs for a new min-

eral deposit.

•

Costs of establishing, maintaining, or in-

creasing the circulation of a newspaper or

other periodical.

•

Costs of removing architectural and trans-

portation barriers to people with disabilities

and the elderly. If you claim the disabled

access credit, you must reduce the amount

you deduct or capitalize by the amount of

the credit.

For more information about deducting or

capitalizing costs, see chapter 7 in Pub. 535.

Decreases to Basis

The following are some items that reduce the

basis of property.

•

Section 179 deduction.

•

Deduction under section 179D for certain

energy efficient commercial building prop-

erty.

•

Nontaxable corporate distributions.

•

Deductions previously allowed (or allowa-

ble) for amortization, depreciation, and de-

pletion.

•

Exclusion of subsidies for energy conser-

vation measures.

•

Certain vehicle credits.

•

Residential energy credits.

•

Postponed gain from sale of home.

•

Investment credit (part or all) taken.

•

Advanced manufacturing investment credit

taken.

•

Casualty and theft losses and insurance

reimbursement.

•

Certain canceled debt excluded from in-

come.

•

Rebates treated as adjustments to the

sales price.

•

Easements.

•

Gas-guzzler tax.

•

Adoption tax benefits.

•

Credit for employer-provided child care.

•

Partial disposition of MACRS property,

whether you elect to recognize the partial

disposition or are required to recognize it.

Some of these items are discussed next.

Casualties and Thefts

If you have a casualty or theft loss, decrease

the basis in your property by any insurance or

other reimbursement and by any deductible

loss not covered by insurance.

If you dispose of a portion of MACRS prop-

erty because of a loss sustained from a casu-

alty event, decrease the basis in the property by

any insurance or other reimbursement and by

any deductible loss on the disposed portion of

the property that isn't covered by insurance.

The deductible loss is generally the decrease in

the FMV of the property resulting from the casu-

alty event, but is limited to the adjusted basis of

the disposed portion of the MACRS property.

You must increase your basis in the property

by the amount you spend on repairs that sub-

stantially prolong the life of the property, in-

crease its value, or adapt it to a different use.

To make this determination, compare the re-

paired property to the property before the casu-

alty. If the amount you spent didn't otherwise

improve the property, then it's deductible as a

repair and doesn't affect basis. For more infor-

mation on casualty and theft losses, see Pub.

547.

Easements

The amount you receive for granting an ease-

ment is generally considered to be a sale of an

interest in real property. It reduces the basis of

the affected part of the property. If the amount

received is more than the basis of the part of

the property affected by the easement, reduce

your basis in that part to zero and treat the ex-

cess as a recognized gain.

Vehicle Credits

Unless you elect not to claim the qualified vehi-

cle credit, the alternative motor vehicle credit, or

the qualified plug-in electric drive motor vehicle

credit, you may have to reduce the basis of

Table 1. Examples of Increases and Decreases to Basis

Increases to Basis Decreases to Basis

Capital improvements:

Putting an addition on your home

Replacing an entire roof

Paving your driveway

Installing central air conditioning

Rewiring your home

Exclusion from income of subsidies for energy

conservation measures

Casualty or theft loss deductions and

insurance reimbursements

Certain vehicle credits

Assessments for local improvements:

Water connections

Sidewalks

Roads

Section 179 deduction

Casualty losses:

Restoring damaged property

Depreciation

Nontaxable corporate distributions

Legal fees:

Cost of defending and perfecting a title

Zoning costs

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Publication 551 (December 2022) Page 5

each qualified vehicle by certain amounts repor-

ted. For more information on available credits,

see Form 8834, Qualified Electric Vehicle

Credit; Form 8910, Alternative Motor Vehicle

Credit; Form 8936, Qualified Plug-in Electric

Drive Motor Vehicle Credit; and the related in-

structions.

Gas-Guzzler Tax

Decrease the basis in your car by the gas-guz-

zler (fuel economy) tax if you begin using the

car within 1 year of the date of its first sale for

ultimate use. This rule also applies to someone

who later buys the car and begins using it not

more than 1 year after the original sale for ulti-

mate use. If the car is imported, the 1-year pe-

riod begins on the date of entry or withdrawal of

the car from the warehouse if that date is later

than the date of the first sale for ultimate use.

Section 179 Deduction

If you take the section 179 deduction for all or

part of the cost of qualifying business property,

decrease the basis of the property by the de-

duction. For more information about the section

179 deduction, see Pub. 946.

Exclusion of Subsidies for Energy

Conservation Measures

You can exclude from gross income any sub-

sidy you received from a public utility company

for the purchase or installation of any energy

conservation measure for a dwelling unit. Re-

duce the basis of the property for which you re-

ceived the subsidy by the excluded amount. For

more information on this subsidy, see Pub. 525.

Depreciation

Decrease the basis of property by the deprecia-

tion you deducted, or could have deducted, on

your tax returns under the method of deprecia-

tion you chose. If you took less depreciation

than you could have under the method chosen,

decrease the basis by the amount you could

have taken under that method. If you didn't take

a depreciation deduction, reduce the basis by

the full amount of the depreciation you could

have taken.

Unless a timely election is made not to de-

duct the special depreciation allowance for

property placed in service after September 10,

2001, decrease the property's basis by the spe-

cial depreciation allowance you deducted or

could have deducted.

If you deducted more depreciation than you

should have, decrease your basis by the

amount equal to the depreciation you should

have deducted plus the part of the excess de-

preciation you deducted that actually reduced

your tax liability for the year.

In decreasing your basis for depreciation,

take into account the amount deducted on your

tax returns as depreciation and any deprecia-

tion capitalized under the uniform capitalization

rules.

For information on figuring depreciation, see

Pub. 946.

If you're claiming depreciation on a business

vehicle, see Pub. 463. If the car isn't used more

than 50% for business during the tax year, you

may have to recapture excess depreciation. In-

clude the excess depreciation in your gross in-

come and add it to your basis in the property.

For information on the computation of excess

depreciation, see chapter 4 in Pub. 463.

Canceled Debt Excluded

From Income

If a debt you owe is canceled or forgiven, other

than as a gift or bequest, you must generally in-

clude the canceled amount in your gross in-

come for tax purposes. A debt includes any in-

debtedness for which you're liable or which

attaches to property you hold.

You can exclude canceled debt from in-

come in the following situations.

1. Debt canceled in a bankruptcy case or

when you're insolvent.

2. Qualified farm debt.

3. Qualified real property business debt (pro-

vided you're not a C corporation).

If you exclude from income canceled debt un-

der situation (1) or (2), you may have to reduce

the basis of your depreciable and nondeprecia-

ble property. However, in situation (3), you must

reduce the basis of your depreciable property

by the excluded amount.

For more information about canceled debt in

a bankruptcy case or during insolvency, see

Pub. 908, Bankruptcy Tax Guide. For more in-

formation about canceled debt that is qualified

farm debt, see chapter 3 in Pub. 225. For more

information about qualified real property busi-

ness debt, see chapter 5 in Pub. 334, Tax

Guide for Small Business.

Postponed Gain From Sale of

Home

If you postponed gain from the sale of your

main home before May 7, 1997, you must re-

duce the basis of your new home by the post-

poned gain. For more information on the rules

for the sale of a home, see Pub. 523.

Adoption Tax Benefits

If you claim an adoption credit for the cost of im-

provements you added to the basis of your

home, decrease the basis of your home by the

credit allowed. This also applies to amounts you

received under an employer's adoption assis-

tance program and excluded from income. For

more information, see Form 8839, Qualified

Adoption Expenses.

Employer-Provided Child Care

If you're an employer, you can claim the em-

ployer-provided child care credit on amounts

you paid or incurred to acquire, construct, reha-

bilitate, or expand property used as part of your

qualified child care facility. You must reduce

your basis in that property by the credit claimed.

For more information, see Form 8882, Credit for

Employer-Provided Child Care Facilities and

Services.

Disposition of a Portion of MACRS

Property

If you sell a portion of MACRS property (a

MACRS asset), you must reduce the adjusted

basis of the asset by the adjusted basis of the

portion sold. Use your records to determine

which portion of the asset was sold, the date

the asset was placed in service, the unadjusted

basis of the portion sold, and its adjusted basis.

See the partial disposition rules in Regulations

section 1.168(i)-8 for more detail. The adjusted

basis of the portion sold is used to determine

the gain or loss realized on the sale. Also see

Pub. 544.

If you physically abandon a portion of

MACRS property (a MACRS asset) and you

elect to recognize the loss on the abandonment

by reporting the loss on your tax return, you

must reduce the adjusted basis of the MACRS

asset by the adjusted basis of the portion aban-

doned. Use your records to determine which

portion of the asset was abandoned, the date

the asset was placed in service, the unadjusted

basis of the portion abandoned, and its adjus-

ted basis. See the partial disposition rules in

Regulations section 1.168(i)-8 for more detail.

Also see Example 2 and Example 3 below.

Adjustments to Basis

Examples

Example 1. In January 2017, you paid

$80,000 for real property to be used as a fac-

tory. You also paid commissions of $2,000 and

title search and legal fees of $600. You alloca-

ted the total cost of $82,600 between the land

and the building—$10,325 for the land and

$72,275 for the building. Immediately, you

spent $20,000 in remodeling the building before

you placed it in service. You were allowed de-

preciation of $14,526 for the years 2017

through 2021. In 2020, you had a $5,000 casu-

alty loss from a storm that wasn't covered by in-

surance on the building. You claimed a deduc-

tion for this loss. You spent $5,500 to repair the

damages and to otherwise improve the build-

ing. The adjusted basis of the building on Janu-

ary 1, 2022, is figured as follows:

Original cost of building including fees and

commissions

...................... $72,275

Adjustments to basis:

Add:

Improvements ................. 20,000

Repair of damages .............. 5,500

$97,775

Subtract:

Depreciation .......... $14,526

Deducted casualty

loss ................

5,000 19,526

Adjusted basis on January 1, 2022 .... $78,249

The basis of the land, $10,325, remains un-

changed. It's not affected by any of the above

adjustments.

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Page 6 Publication 551 (December 2022)

Example 2. You own a building that you pur-

chased in 1990 for $75,000. You use the build-

ing in your business. The building is a MACRS

asset. You removed and abandoned the roof on

the building and replaced it with a new roof. You

make the partial disposition election to recog-

nize loss on the abandonment of the old roof by

reporting the loss on your timely filed tax return.

The loss is the adjusted basis of the roof as of

the first day of the tax year of the abandonment.

Using your records, you determine that the

abandoned roof was placed in service in 1990

with the building, the unadjusted basis of the

building attributable to the roof is $5,000, and

after you deducted depreciation of $3,500 on

the roof, its adjusted basis as of the first day of

the tax year of the abandonment is $1,500. Re-

port the $1,500 ordinary loss in Part II of Form

4797. In your depreciation records, you must

reduce the unadjusted basis of the building,

$75,000, by the unadjusted basis of the roof,

$5,000, as well as reduce the accumulated de-

preciation of the building by the accumulated

depreciation on the roof, $3,500. You must also

capitalize the cost of the replacement roof and

depreciate it as a separate asset from the build-

ing.

Example 3. You own a bulldozer that you pur-

chased 2 years ago for $25,000. You use the

bulldozer in your business. The bulldozer is a

MACRS asset. You removed and replaced the

bucket on the bulldozer with a new bucket. You

make the partial disposition election to recog-

nize loss on the abandonment of the old bucket

by reporting the loss on your timely filed tax re-

turn. The loss is the adjusted basis of the

bucket as of the first day of the tax year of the

abandonment. Using your records, you deter-

mine that the abandoned bucket was placed in

service with the bulldozer, the unadjusted basis

of the bucket is $5,000, and after you deducted

depreciation of $3,800 on the bucket, the adjus-

ted basis of the bucket as of the first day of the

tax year of the abandonment is $1,200. Report

the $1,200 ordinary loss in Part II of Form 4797.

In your depreciation records, you must reduce

the unadjusted basis of the bulldozer, $25,000,

by the unadjusted basis of the bucket, $5,000,

as well as reduce the accumulated depreciation

of the bulldozer by the accumulated deprecia-

tion on the bucket, $3,800. You must also capi-

talize the cost of the replacement bucket and

begin depreciating it as a separate asset from

the bulldozer.

Basis Other Than Cost

There are many times when you can't use cost

as basis. In these cases, the FMV or the adjus-

ted basis of property may be used. Adjusted ba-

sis is discussed earlier.

FMV is the price at which property would

change hands between a buyer and a seller,

neither having to buy or sell, and both having

reasonable knowledge of all necessary facts.

Sales of similar property on or about the same

date may be helpful in figuring the property's

FMV.

Property Received

for Services

If you receive property for services, include the

property's FMV in income. The amount you in-

clude in income becomes your basis. If the

services were performed for a price agreed on

beforehand, it will be accepted as the FMV of

the property if there is no evidence to the con-

trary.

Bargain Purchases

A bargain purchase is a purchase of an item for

less than its FMV. If, as compensation for serv-

ices, you purchase goods or other property at

less than FMV, include the difference between

the purchase price and the property's FMV in

your income. Your basis in the property is its

FMV (your purchase price plus the amount you

include in income).

If the difference between your purchase

price and the FMV represents a qualified em-

ployee discount, don't include the difference in

income. However, your basis in the property is

still its FMV. See Employee Discounts in Pub.

15-B.

Restricted Property

If you receive property for your services and the

property is subject to certain restrictions, your

basis in the property is its FMV when it be-

comes substantially vested unless you make

the election discussed later. Property becomes

substantially vested when your rights in the

property or the rights of any person to whom

you transfer the property are not subject to a

substantial risk of forfeiture.

There is substantial risk of forfeiture when

the rights to full enjoyment of the property de-

pend on the future performance of substantial

services by any person.

When the property becomes substantially

vested, include the FMV, less any amount you

paid for the property, in income.

Example. Your employer gives you stock

for services performed under the condition that

you'll have to return the stock unless you com-

plete 5 years of service. The stock is under a

substantial risk of forfeiture and isn't substan-

tially vested when you receive it. You don't re-

port any income until you have completed the 5

years of service that satisfy the condition.

FMV Figure the FMV of property you received

without considering any restriction except one

that by its terms will never end.

Example. You received stock from your

employer for services you performed. If you

want to sell the stock while you're still em-

ployed, you must sell the stock to your em-

ployer at book value. At your retirement or

death, you or your estate must offer to sell the

stock to your employer at its book value. This is

a restriction that by its terms will never end and

you must consider it when you figure the FMV.

Election. You can choose to include in your

gross income the FMV of the property at the

time of transfer, less any amount you paid for it.

If you make this choice, the substantially vested

rules don't apply. Your basis is the amount you

paid plus the amount you included in income.

See the discussion of Restricted Property in

Pub. 525 for more information.

Taxable Exchanges

A taxable exchange is one in which the gain is

taxable or the loss is deductible. A taxable gain

or deductible loss is also known as a recog-

nized gain or loss. If you receive property in ex-

change for other property in a taxable ex-

change, the basis of property you receive is

usually its FMV at the time of the exchange. A

taxable exchange occurs when you receive

cash or property not similar or related in use to

the property exchanged.

Example. You trade a tract of farm land

with an adjusted basis of $3,000 for a tractor

that has an FMV of $6,000. You must report a

taxable gain of $3,000 for the land. The tractor

has a basis of $6,000.

Involuntary Conversions

If you receive property as a result of an involun-

tary conversion, such as a casualty, theft, or

condemnation, you can figure the basis of the

replacement property you receive using the ba-

sis of the converted property.

Similar or related property. If you receive re-

placement property similar or related in service

or use to the converted property, the replace-

ment property's basis is the old property's basis

on the date of the conversion. However, make

the following adjustments.

1. Decrease the basis by the following.

a. Any loss you recognize on the conver-

sion.

b. Any money you receive that you don't

spend on similar property.

2. Increase the basis by the following.

a. Any gain you recognize on the con-

version.

b. Any cost of acquiring the replacement

property.

Money or property not similar or related. If

you receive money or property not similar or re-

lated in service or use to the converted prop-

erty, and you buy replacement property similar

or related in service or use to the converted

property, the basis of the new property is its

cost decreased by the gain not recognized on

the conversion.

Example. The state condemned your prop-

erty. The property had an adjusted basis of

$26,000 and the state paid you $31,000 for it.

You realized a gain of $5,000 ($31,000 −

$26,000). You bought replacement property

similar in use to the converted property for

$29,000. You recognize a gain of $2,000

($31,000 − $29,000), the unspent part of the

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Publication 551 (December 2022) Page 7

payment from the state. Your gain not recog-

nized is $3,000, the difference between the

$5,000 realized gain and the $2,000 recognized

gain. The basis of the new property is figured as

follows:

Cost of replacement property ........... $29,000

Minus: Gain not recognized ............ 3,000

Basis of the replacement property $26,000

Allocating the basis. If you buy more than

one piece of replacement property, allocate

your basis among the properties based on their

respective costs.

Example. The state in the previous exam-

ple condemned your unimproved real property

and the replacement property you bought was

improved real property with both land and build-

ings. Allocate the replacement property's

$26,000 basis between land and buildings

based on their respective costs.

More information. For more information about

condemnations, see Involuntary Conversions in

Pub. 544. For more information about casualty

and theft losses, see Pub. 547.

Nontaxable Exchanges

Terms you may need to know

(see Glossary):

Intangible property

Like-kind property

Personal property

Real property

A nontaxable exchange is an exchange in

which you're not taxed on any gain and you

can't deduct any loss. If you receive property in

a nontaxable exchange, its basis is usually the

same as the basis of the property you transfer-

red. A nontaxable gain or loss is also known as

an unrecognized gain or loss.

Like-Kind Exchanges

The exchange of property for the same kind of

property may qualify as a nontaxable exchange

under section 1031 of the Internal Revenue

Code. Beginning after 2017, nontaxable

like-kind exchange treatment under section

1031 applies only to exchanges of real property

held for use in a trade or business or for invest-

ment, other than real property held primarily for

sale. Before 2017, section 1031 also applied to

certain exchanges of personal or intangible

property. Nontaxable like-kind exchange treat-

ment under section 1031 will still apply to a

qualifying exchange of personal or intangible

property if the taxpayer disposed of the ex-

changed property on or before December 31,

2017, or received replacement property on or

before that date.

To qualify as a like-kind exchange, you must

hold for business or investment purposes both

the real property you transfer and the real prop-

erty you receive. There must also be an

exchange of like-kind property. For more infor-

mation, see Like-Kind Exchanges in Pub. 544.

The basis of the property you receive is the

same as the basis of the property you gave up.

Example. You exchange real estate (adjus-

ted basis $50,000, FMV $80,000) held for in-

vestment for other real estate (FMV $80,000)

held for investment. Your basis in the new prop-

erty is the same as the basis of the old property

($50,000).

Exchange expenses. Exchange expenses

are generally the closing costs you pay. They

include such items as brokerage commissions,

attorney fees, deed preparation fees, etc. Add

them to the basis of the like-kind property re-

ceived.

Property plus cash. If you trade property in a

like-kind exchange and also pay money, the ba-

sis of the property received is the basis of the

property you gave up increased by the money

you paid.

Example. You exchange a parcel of real

property (adjusted basis of $30,000) for another

parcel of real property (FMV $75,000) and pay

$40,000. Your basis in the newly acquired real

property is $70,000 (the $30,000 adjusted basis

of the old parcel plus the $40,000 paid).

Special rules for related persons. If a

like-kind exchange takes place directly or indi-

rectly between related persons and either party

disposes of the property within 2 years after the

exchange, the exchange no longer qualifies for

like-kind exchange treatment. Each person

must report any gain or loss not recognized on

the original exchange. Each person reports it on

the tax return filed for the year in which the later

disposition occurs. If this rule applies, the basis

of the property received in the original ex-

change will be its FMV (at the time of the ex-

change).

These rules generally don't apply to the fol-

lowing kinds of property dispositions.

•

Dispositions due to the death of either rela-

ted person.

•

Involuntary conversions.

•

Dispositions in which neither the original

exchange nor the subsequent disposition

had as a main purpose the avoidance of

federal income tax.

Related persons. Generally, related per-

sons are ancestors, lineal descendants, broth-

ers and sisters (whole or half), and a spouse.

For other related persons (for example, two

corporations, an individual and a corporation, a

grantor and fiduciary, etc.), see Nondeductible

Loss in chapter 2 of Pub. 544.

Partially Nontaxable Exchange

A partially nontaxable exchange is an exchange

in which you receive unlike property or money

in addition to like property. The basis of the

property you receive is the same as the basis of

the property you gave up, with the following ad-

justments.

1. Decrease the basis by the following

amounts.

a. Any money you receive.

b. Any loss you recognize on the ex-

change.

2. Increase the basis by the following

amounts.

a. Any additional costs you incur.

b. Any gain you recognize on the ex-

change.

If the other party to the exchange assumes

your liabilities, treat the debt assumption as

money you received in the exchange.

Example. You trade a parcel of real prop-

erty with an adjusted basis of $60,000 for an-

other parcel of real property with an FMV of

$52,000 and $10,000 cash. You realize a gain

of $2,000 (the FMV of the parcel of real prop-

erty received plus the cash minus the adjusted

basis of real property you traded ($52,000 +

$10,000 – $60,000)). You must include all

$2,000 of the gain in income as recognized gain

because the gain is less than the cash received.

Your basis in the newly acquired parcel of real

property is as follows:

Adjusted basis of old property

........... $60,000

Minus: Cash received (adjustment 1(a)) .... 10,000

$50,000

Plus: Gain recognized (adjustment 2(b)) .... 2,000

Basis of new property ........... $52,000

Allocation of basis. Allocate the basis first to

the unlike property, other than money, up to its

FMV on the date of the exchange. The rest is

the basis of the like property.

Example. You had an adjusted basis of

$15,000 in real estate you held for investment.

You exchanged it for other real estate to be held

for investment with an FMV of $12,500, a truck

with an FMV of $3,000, and $1,000 cash. The

truck is unlike property. You realized a gain of

$1,500 ($16,500 − $15,000). This is the FMV of

the real estate received plus the FMV of the

truck received plus the cash minus the adjus-

ted basis of the real estate you traded ($12,500

+ $3,000 + $1,000 – $15,000). You include in

income (recognize) all $1,500 of the gain be-

cause it's less than the FMV of the unlike prop-

erty plus the cash received. Your basis in the

properties you received is figured as follows:

Adjusted basis of real estate transferred

... $15,000

Minus: Cash received (adjustment 1(a)) ... 1,000

$14,000

Plus: Gain recognized (adjustment 2(b)) ... 1,500

Total basis of properties received $15,500

Allocate the total basis of $15,500 first to the

unlike property — the truck ($3,000). This is the

truck's FMV. The rest ($12,500) is the basis of

the real estate.

Sale and Purchase

If you sell property and buy similar property in

two mutually dependent transactions, you may

have to treat the sale and purchase as a single

nontaxable exchange.

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Page 8 Publication 551 (December 2022)

Example. You have real property held for

productive use in your trade or business. Its ad-

justed basis is $500,000 and its FMV is

$750,000. You're interested in replacing the

property with real estate containing a building

worth $900,000. Ordinarily, you would swap

properties and pay the $150,000 difference in

FMVs. Your basis would then be $650,000

($150,000 cash paid plus $500,000 adjusted

basis in your old property).

You want your new real property to have a

larger basis for depreciation, so you arrange to

sell your old property to the other party. You

then buy the new property from that individual

for $900,000. However, if the sale and pur-

chase are reciprocal and mutually dependent,

you're treated as having exchanged your old

property for the new property. In that case, your

basis for depreciation for the new property is

$650,000, the same as if you had exchanged

the old property for the new property.

Partial Business Use of Property

If you have real property, a portion of which is

used for business and a portion of which is

used for personal use, and you exchange it in a

nontaxable exchange for real property to be

used wholly or partly in your business, the basis

of the property you receive is figured separately

for the business and nonbusiness use parts.

The part of the property used for business is an

exchange of like-kind property. The per-

sonal-use part of the property is property on

which gain is recognized.

Figure the adjusted basis of each part of the

property by taking into account any adjustments

to basis. Deduct the depreciation you took or

could have taken from the adjusted basis of the

business part. Then figure the amount realized

for your property and allocate it to the business

and nonbusiness parts of the property.

You're deemed to have received, in ex-

change for the nonbusiness part, an amount

equal to its FMV on the date of the exchange.

The basis of the property you acquired is the to-

tal basis of the property transferred (adjusted to

the date of the exchange), increased by any

gain recognized on the nonbusiness part.

If the nonbusiness part of the property

transferred is your main home, you

may qualify to exclude from income all

or part of the gain on that part. For more infor-

mation, see Pub. 523.

Property Transferred

From a Spouse

The basis of property transferred to you or

transferred in trust for your benefit by your

spouse (or former spouse if the transfer is inci-

dent to divorce) is the same as your spouse's

adjusted basis. However, adjust your basis for

any gain recognized by your spouse or former

spouse on property transferred in trust. This

rule applies only to a transfer of property in trust

in which the liabilities assumed, plus the liabili-

ties to which the property is subject, are more

than the adjusted basis of the property transfer-

red.

TIP

If the property transferred to you is a series

E, series EE, or series I U.S. savings bond, the

transferor must include in income the interest

accrued to the date of transfer. Your basis in the

bond immediately after the transfer is equal to

the transferor's basis increased by the interest

income includible in the transferor's income. For

more information on these bonds, see Pub.

550.

At the time of the transfer, the transferor

must give you the records necessary to deter-

mine the adjusted basis and holding period of

the property as of the date of transfer.

For more information, see Pub. 504, Di-

vorced or Separated Individuals.

Property

Received as a Gift

To figure the basis of property you receive as a

gift, you must know its adjusted basis (defined

earlier) to the donor just before it was given to

you, its FMV at the time it was given to you, and

any gift tax paid on it.

FMV Less Than

Donor's Adjusted Basis

If the FMV of the property at the time of the gift

is less than the donor's adjusted basis, your ba-

sis depends on whether you have a gain or a

loss when you dispose of the property. Your ba-

sis for figuring gain is the same as the donor's

adjusted basis plus or minus any required ad-

justment to basis while you held the property.

Your basis for figuring loss is its FMV when you

received the gift plus or minus any required ad-

justment to basis while you held the property

(see Adjusted Basis, earlier).

If you use the donor's adjusted basis for fig-

uring a gain and get a loss, and then use the

FMV for figuring a loss and have a gain, you

have neither gain nor loss on the sale or dispo-

sition of the property.

Example. You received an acre of land as

a gift. At the time of the gift, the land had an

FMV of $8,000. The donor's adjusted basis was

$10,000. After you received the land, no events

occurred to increase or decrease your basis. If

you sell the land for $12,000, you'll have a

$2,000 gain because you must use the donor's

adjusted basis ($10,000) at the time of the gift

as your basis to figure gain. If you sell the land

for $7,000, you'll have a $1,000 loss because

you must use the FMV ($8,000) at the time of

the gift as your basis to figure a loss.

If the sales price is between $8,000 and

$10,000, you have neither gain nor loss. For in-

stance, if the sales price was $9,000 and you

tried to figure a gain using the donor's adjusted

basis ($10,000), you would get a $1,000 loss. If

you then tried to figure a loss using the FMV

($8,000), you would get a $1,000 gain.

Business property. If you hold the gift as

business property, your basis for figuring any

depreciation, depletion, or amortization deduc-

tion is the same as the donor's adjusted basis

plus or minus any required adjustments to basis

while you hold the property.

FMV Equal to or More Than

Donor's Adjusted Basis

If the FMV of the property is equal to or greater

than the donor's adjusted basis, your basis is

the donor's adjusted basis at the time you re-

ceived the gift. Increase your basis by all or part

of any gift tax paid, depending on the date of

the gift.

Also, for figuring gain or loss from a sale or

other disposition of the property, or for figuring

depreciation, depletion, or amortization deduc-

tions on business property, you must increase

or decrease your basis by any required adjust-

ments to basis while you held the property. See

Adjusted Basis, earlier.

Gift received before 1977. If you received a

gift before 1977, increase your basis in the gift

(the donor's adjusted basis) by any gift tax paid

on it. However, don't increase your basis above

the FMV of the gift at the time it was given to

you.

Example 1. You were given a house in

1976 with an FMV of $21,000. The donor's ad-

justed basis was $20,000. The donor paid a gift

tax of $500. Your basis is $20,500, the donor's

adjusted basis plus the gift tax paid.

Example 2. If, in Example 1, the gift tax

paid had been $1,500, your basis would be

$21,000. This is the donor's adjusted basis plus

the gift tax paid, limited to the FMV of the house

at the time you received the gift.

Gift received after 1976. If you received a gift

after 1976, increase your basis in the gift (the

donor's adjusted basis) by the part of the gift tax

paid on it that is due to the net increase in value

of the gift. Figure the increase by multiplying the

gift tax paid by a fraction. The numerator of the

fraction is the net increase in value of the gift,

and the denominator is the amount of the gift.

The net increase in value of the gift is the

FMV of the gift less the donor's adjusted basis.

The amount of the gift is its value for gift tax pur-

poses after reduction by any annual exclusion

and marital or charitable deduction that applies

to the gift. For information on the gift tax, see

Pub. 559, Survivors, Executors, and Adminis-

trators.

Example. In 2022, you received a gift of

property from your mother that had an FMV of

$50,000. Her adjusted basis was $20,000. The

amount of the gift for gift tax purposes was

$34,000 ($50,000 minus the $16,000 annual

exclusion). She paid a gift tax of $6,880. Your

basis, $26,054, is figured as follows:

Fair market value

................. $50,000

Minus: Adjusted basis .............. 20,000

Net increase in value ............... $30,000

Gift tax paid ..................... $6,880

Multiplied by ($30,000 ÷ $34,000) ...... 0.88

Gift tax due to net increase in value ..... $6,054

Adjusted basis of property to your

mother .......................

20,000

Your basis in the property ....... $26,054

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Publication 551 (December 2022) Page 9

Inherited Property

The basis of property inherited from a decedent

is generally one of the following.

1. The FMV of the property at the date of the

individual's death.

2. The FMV on the alternate valuation date if

the personal representative for the estate

chooses to use alternate valuation. For in-

formation on the alternate valuation date,

see the Instructions for Form 706.

3. The value under the special-use valuation

method for real property used in farming or

a closely held business if chosen for es-

tate tax purposes. This method is dis-

cussed later.

4. The decedent's adjusted basis in land to

the extent of the value excluded from the

decedent's taxable estate as a qualified

conservation easement. For information

on a qualified conservation easement, see

the Instructions for Form 706.

If a federal estate tax return doesn't have to

be filed, your basis in the inherited property is

its appraised value at the date of death for state

inheritance or transmission taxes.

For more information, see the Instructions

for Form 706.

Appreciated property. The above rule

doesn't apply to appreciated property you re-

ceive from a decedent if you or your spouse

originally gave the property to the decedent

within 1 year before the decedent's death. Your

basis in this property is the same as the dece-

dent's adjusted basis in the property immedi-

ately before his or her death, rather than its

FMV. Appreciated property is any property

whose FMV on the day it was given to the dece-

dent is more than its adjusted basis.

Community Property

In community property states (Arizona, Califor-

nia, Idaho, Louisiana, Nevada, New Mexico,

Texas, Washington, and Wisconsin), married

individuals are each usually considered to own

half the community property. When either

spouse dies, the total value of the community

property, even the part belonging to the surviv-

ing spouse, generally becomes the basis of the

entire property. For this rule to apply, at least

half the value of the community property inter-

est must be includible in the decedent's gross

estate, whether or not the estate must file a re-

turn.

For example, you and your spouse owned

community property that had a basis of

$80,000. When your spouse died, half the FMV

of the community interest was includible in your

spouse's estate. The FMV of the community in-

terest was $100,000. The basis of your half of

the property after the death of your spouse is

$50,000 (half of the $100,000 FMV). The basis

of the other half to your spouse's heirs is also

$50,000.

For more information on community prop-

erty, see Pub. 555, Community Property.

Property Held by Surviving Tenant

The following example explains the rule for the

basis of property held by a surviving tenant in

joint tenancy or tenancy by the entirety.

Example. John and Jim owned, as joint

tenants with right of survivorship, business

property purchased for $30,000. John furnished

two-thirds of the purchase price and Jim fur-

nished one-third. Depreciation deductions al-

lowed before John's death were $12,000. Un-

der local law, each had a half interest in the

income from the property. At the date of John's

death, the property had an FMV of $60,000,

two-thirds of which is includible in John's estate.

Jim’s basis in the property at the date of John's

death is figured as follows:

Interest Jim bought with his

own funds—

/3 of $30,000

cost ................. $10,000

Interest Jim received on John's

death—

/3 of

$60,000 FMV ..........

40,000

$50,000

Minus:

/2 of $12,000 depreciation

before John's death .............

6,000

Jim's basis at the date of John's

death ................

$44,000

If Jim hadn't contributed any part of the pur-

chase price, Jim’s basis at the date of John's

death would be $54,000. This is figured by sub-

tracting from the $60,000 FMV the $6,000 de-

preciation allocated to Jim's half interest before

the date of death.

If under local law Jim had no interest in the

income from the property and contributed no

part of the purchase price, Jim’s basis at John's

death would be $60,000, the FMV of the prop-

erty.

Qualified Joint Interest

Include one-half of the value of a qualified joint

interest in the decedent's gross estate. It

doesn't matter how much each spouse contrib-

uted to the purchase price. Also, it doesn't mat-

ter which spouse dies first.

A qualified joint interest is any interest in

property held by married individuals as either of

the following.

•

Tenants by the entirety.

•

Joint tenants with right of survivorship if the

married couple are the only joint tenants.

Basis. As the surviving spouse, your basis in

property you owned with your spouse as a

qualified joint interest is the cost of your half of

the property with certain adjustments. Decrease

the cost by any deductions allowed to you for

depreciation and depletion. Increase the re-

duced cost by your basis in the half you inheri-

ted.

Farm or Closely Held Business

Under certain conditions, when a person dies,

the executor or personal representative of that

person's estate can choose to value the quali-

fied real property on other than its FMV. If so,

the executor or personal representative values

the qualified real property based on its use as a

farm or its use in a closely held business. If the

executor or personal representative chooses

this method of valuation for estate tax purposes,

that value is the basis of the property for the

heirs. Qualified heirs should be able to get the

necessary value from the executor or personal

representative of the estate.

Special-use valuation. If you're a qualified

heir who received special-use valuation prop-

erty, your basis in the property is the estate's or

trust's basis in that property immediately before

the distribution. Increase your basis by any gain

recognized by the estate or trust because of

post-death appreciation. Post-death apprecia-

tion is the property's FMV on the date of distri-

bution minus the property's FMV either on the

date of the individual's death or the alternate

valuation date. Figure all FMVs without regard

to the special-use valuation.

You can elect to increase your basis in spe-

cial-use valuation property if it becomes subject

to the additional estate tax. This tax is assessed

if, within 10 years after the death of the dece-

dent, you transfer the property to a person who

isn't a member of your family or the property

stops being used as a farm or in a closely held

business.

To increase your basis in the property, you

must make an irrevocable election and pay in-

terest on the additional estate tax figured from

the date 9 months after the decedent's death

until the date of the payment of the additional

estate tax. If you meet these requirements, in-

crease your basis in the property to its FMV on

the date of the decedent's death or the alternate

valuation date. The increase in your basis is

considered to have occurred immediately be-

fore the event that results in the additional es-

tate tax.

You make the election by filing with Form

706-A a statement that does all of the following.

•

Contains your name, address, and tax-

payer identification number and those of

the estate.

•

Identifies the election as an election under

section 1016(c) of the Internal Revenue

Code.

•

Specifies the property for which the elec-

tion is made.

•

Provides any additional information re-

quired by the Instructions for Form 706-A.

For more information, see the Instructions

for Form 706 and the Instructions for Form

706-A.

Property Changed to

Business or Rental Use

If you hold property for personal use and then

change it to business use or use it to produce

rent, you must figure its basis for depreciation.

An example of changing property held for per-

sonal use to business use would be renting out

your former main home.

Basis for depreciation. The basis for depreci-

ation is the lesser of the following amounts.

•

The FMV of the property on the date of the

change, or

•

Your adjusted basis on the date of the

change.

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Page 10 Publication 551 (December 2022)

Example. Several years ago, you paid

$160,000 to have your home built on a lot that

cost $25,000. You paid $20,000 for permanent

improvements to the house and claimed a

$2,000 casualty loss deduction for damage to

the house before changing the property to

rental use last year. Because land isn't depreci-

able, you include only the cost of the house

when figuring the basis for depreciation.

Your adjusted basis in the house when you

changed its use was $178,000 ($160,000 +

$20,000 − $2,000). On the same date, your

property had an FMV of $180,000, of which

$15,000 was for the land and $165,000 was for

the house. The basis for figuring depreciation

on the house is its FMV on the date of change

($165,000) because it's less than your adjusted

basis ($178,000).

Sale of property. If you later sell or dispose of

property changed to business or rental use, the

basis of the property you use will depend on

whether you're figuring gain or loss.

Gain. The basis for figuring a gain is your

adjusted basis when you sell the property.

Example. Assume the same facts as in the

previous example except that you sell the prop-

erty at a gain after being allowed depreciation

deductions of $37,500. Your adjusted basis for

figuring gain is $165,500 ($178,000 + $25,000

(land) − $37,500).

Loss. Figure the basis for a loss starting

with the smaller of your adjusted basis or the

FMV of the property at the time of the change to

business or rental use. Then adjust this amount

for the period after the change in the property's

use, as discussed earlier under Adjusted Basis,

to arrive at a basis for loss.

Example. Assume the same facts as in the

previous example, except that you sell the prop-

erty at a loss after being allowed depreciation

deductions of $37,500. In this case, you would

start with the FMV on the date of the change to

rental use ($180,000) because it's less than the

adjusted basis of $203,000 ($178,000 +

$25,000) on that date. Reduce that amount

($180,000) by the depreciation deductions to

arrive at a basis for loss of $142,500 ($180,000

− $37,500).

How To Get Tax Help

If you have questions about a tax issue; need

help preparing your tax return; or want to down-

load free publications, forms, or instructions, go

to IRS.gov to find resources that can help you

right away.

Preparing and filing your tax return. After

receiving all your wage and earnings state-

ments (Forms W-2, W-2G, 1099-R, 1099-MISC,

1099-NEC, etc.); unemployment compensation

statements (by mail or in a digital format) or

other government payment statements (Form

1099-G); and interest, dividend, and retirement

statements from banks and investment firms

(Forms 1099), you have several options to

choose from to prepare and file your tax return.

You can prepare the tax return yourself, see if

you qualify for free tax preparation, or hire a tax

professional to prepare your return.

Free options for tax preparation. Go to

IRS.gov to see your options for preparing and

filing your return online or in your local commun-

ity, if you qualify, which include the following.

•

Free File. This program lets you prepare

and file your federal individual income tax

return for free using brand-name tax-prep-

aration-and-filing software or Free File filla-

ble forms. However, state tax preparation

may not be available through Free File. Go

to IRS.gov/FreeFile to see if you qualify for

free online federal tax preparation, e-filing,

and direct deposit or payment options.

•

VITA. The Volunteer Income Tax Assis-

tance (VITA) program offers free tax help

to people with low-to-moderate incomes,

persons with disabilities, and limited-Eng-

lish-speaking taxpayers who need help

preparing their own tax returns. Go to

IRS.gov/VITA, download the free IRS2Go

app, or call 800-906-9887 for information

on free tax return preparation.

•

TCE. The Tax Counseling for the Elderly

(TCE) program offers free tax help for all

taxpayers, particularly those who are 60

years of age and older. TCE volunteers

specialize in answering questions about

pensions and retirement-related issues

unique to seniors. Go to IRS.gov/TCE,

download the free IRS2Go app, or call

888-227-7669 for information on free tax

return preparation.

•

MilTax. Members of the U.S. Armed

Forces and qualified veterans may use Mil-

Tax, a free tax service offered by the De-

partment of Defense through Military One-

Source. For more information, go to

MilitaryOneSource (MilitaryOneSource.mil/

MilTax).

Also, the IRS offers Free Fillable

Forms, which can be completed online and

then filed electronically regardless of in-

come.

Using online tools to help prepare your re-

turn. Go to IRS.gov/Tools for the following.

•

The Earned Income Tax Credit Assistant

(IRS.gov/EITCAssistant) determines if

you’re eligible for the earned income credit

(EIC).

•

The Online EIN Application (IRS.gov/EIN)

helps you get an employer identification

number (EIN) at no cost.

•

The Tax Withholding Estimator (IRS.gov/

W4app) makes it easier for you to estimate

the federal income tax you want your em-

ployer to withhold from your paycheck.

This is tax withholding. See how your with-

holding affects your refund, take-home

pay, or tax due.

•

The First-Time Homebuyer Credit Account

Look-up (IRS.gov/HomeBuyer) tool pro-

vides information on your repayments and

account balance.

•

The Sales Tax Deduction Calculator

(IRS.gov/SalesTax) figures the amount you

can claim if you itemize deductions on

Schedule A (Form 1040).

Getting answers to your tax ques-

tions. On IRS.gov, you can get

up-to-date information on current

events and changes in tax law.

•

IRS.gov/Help: A variety of tools to help you

get answers to some of the most common

tax questions.

•

IRS.gov/ITA: The Interactive Tax Assistant,

a tool that will ask you questions and,

based on your input, provide answers on a

number of tax law topics.

•

IRS.gov/Forms: Find forms, instructions,

and publications. You will find details on

the most recent tax changes and interac-

tive links to help you find answers to your

questions.

•

You may also be able to access tax law in-

formation in your electronic filing software.

Need someone to prepare your tax return?

There are various types of tax return preparers,

including enrolled agents, certified public ac-

countants (CPAs), accountants, and many oth-

ers who don’t have professional credentials. If

you choose to have someone prepare your tax

return, choose that preparer wisely. A paid tax

preparer is:

•

Primarily responsible for the overall sub-

stantive accuracy of your return,

•

Required to sign the return, and

•

Required to include their preparer tax iden-

tification number (PTIN).

Although the tax preparer always signs the

return, you're ultimately responsible for provid-

ing all the information required for the preparer

to accurately prepare your return. Anyone paid

to prepare tax returns for others should have a

thorough understanding of tax matters. For

more information on how to choose a tax pre-

parer, go to Tips for Choosing a Tax Preparer

on IRS.gov.

Coronavirus. Go to IRS.gov/Coronavirus for

links to information on the impact of the corona-

virus, as well as tax relief available for individu-

als and families, small and large businesses,

and tax-exempt organizations.

Employers can register to use Business

Services Online. The Social Security Adminis-

tration (SSA) offers online service at SSA.gov/

employer for fast, free, and secure online W-2

filing options to CPAs, accountants, enrolled

agents, and individuals who process Form W-2,

Wage and Tax Statement, and Form W-2c,

Corrected Wage and Tax Statement.

IRS social media. Go to IRS.gov/SocialMedia

to see the various social media tools the IRS

uses to share the latest information on tax

changes, scam alerts, initiatives, products, and

services. At the IRS, privacy and security are

our highest priority. We use these tools to share

public information with you. Don’t post your so-

cial security number (SSN) or other confidential

information on social media sites. Always pro-

tect your identity when using any social net-

working site.

The following IRS YouTube channels pro-

vide short, informative videos on various tax-re-

lated topics in English, Spanish, and ASL.

•

Youtube.com/irsvideos.

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Publication 551 (December 2022) Page 11

•

Youtube.com/irsvideosmultilingua.

•

Youtube.com/irsvideosASL.

Watching IRS videos. The IRS Video portal

(IRSVideos.gov) contains video and audio pre-

sentations for individuals, small businesses,

and tax professionals.

Online tax information in other languages.

You can find information on IRS.gov/

MyLanguage if English isn’t your native lan-

guage.

Free Over-the-Phone Interpreter (OPI) Serv-

ice. The IRS is committed to serving our multi-

lingual customers by offering OPI services. The

OPI Service is a federally funded program and

is available at Taxpayer Assistance Centers

(TACs), other IRS offices, and every VITA/TCE

return site. The OPI Service is accessible in

more than 350 languages.

Accessibility Helpline available for taxpay-

ers with disabilities. Taxpayers who need in-

formation about accessibility services can call

833-690-0598. The Accessibility Helpline can

answer questions related to current and future

accessibility products and services available in

alternative media formats (for example, braille,

large print, audio, etc.). The Accessibility Help-

line does not have access to your IRS account.

For help with tax law, refunds, or account-rela-

ted issues, go to IRS.gov/LetUsHelp.

Note. Form 9000, Alternative Media Prefer-

ence, or Form 9000(SP) allows you to elect to

receive certain types of written correspondence

in the following formats.

•

Standard Print.

•

Large Print.

•

Braille.

•

Audio (MP3).

•

Plain Text File (TXT).

•

Braille Ready File (BRF).

Disasters. Go to Disaster Assistance and

Emergency Relief for Individuals and

Businesses to review the available disaster tax

relief.

Getting tax forms and publications. Go to

IRS.gov/Forms to view, download, or print all

the forms, instructions, and publications you

may need. Or, you can go to IRS.gov/

OrderForms to place an order.

Getting tax publications and instructions in

eBook format. You can also download and

view popular tax publications and instructions

(including the Instructions for Form 1040) on

mobile devices as eBooks at IRS.gov/eBooks.

Note. IRS eBooks have been tested using

Apple's iBooks for iPad. Our eBooks haven’t

been tested on other dedicated eBook readers,

and eBook functionality may not operate as in-

tended.

Access your online account (individual tax-

payers only). Go to IRS.gov/Account to se-

curely access information about your federal tax

account.

•

View the amount you owe and a break-

down by tax year.

•

See payment plan details or apply for a

new payment plan.

•

Make a payment or view 5 years of pay-

ment history and any pending or sched-

uled payments.

•

Access your tax records, including key

data from your most recent tax return, and

transcripts.

•

View digital copies of select notices from

the IRS.

•

Approve or reject authorization requests

from tax professionals.

•

View your address on file or manage your

communication preferences.

Tax Pro Account. This tool lets your tax pro-

fessional submit an authorization request to ac-

cess your individual taxpayer IRS online

account. For more information, go to IRS.gov/

TaxProAccount.

Using direct deposit. The fastest way to re-

ceive a tax refund is to file electronically and

choose direct deposit, which securely and elec-

tronically transfers your refund directly into your

financial account. Direct deposit also avoids the

possibility that your check could be lost, stolen,

destroyed, or returned undeliverable to the IRS.

Eight in 10 taxpayers use direct deposit to re-

ceive their refunds. If you don’t have a bank ac-

count, go to IRS.gov/DirectDeposit for more in-

formation on where to find a bank or credit

union that can open an account online.

Getting a transcript of your return. The

quickest way to get a copy of your tax transcript

is to go to IRS.gov/Transcripts. Click on either

“Get Transcript Online” or “Get Transcript by

Mail” to order a free copy of your transcript. If

you prefer, you can order your transcript by call-

ing 800-908-9946.

Reporting and resolving your tax-related

identity theft issues.

•

Tax-related identity theft happens when

someone steals your personal information

to commit tax fraud. Your taxes can be af-

fected if your SSN is used to file a fraudu-

lent return or to claim a refund or credit.

•

The IRS doesn’t initiate contact with tax-

payers by email, text messages (including

shortened links), telephone calls, or social

media channels to request or verify per-

sonal or financial information. This in-

cludes requests for personal identification

numbers (PINs), passwords, or similar in-

formation for credit cards, banks, or other

financial accounts.

•

Go to IRS.gov/IdentityTheft, the IRS Iden-

tity Theft Central webpage, for information

on identity theft and data security protec-

tion for taxpayers, tax professionals, and

businesses. If your SSN has been lost or

stolen or you suspect you’re a victim of

tax-related identity theft, you can learn

what steps you should take.

•

Get an Identity Protection PIN (IP PIN). IP

PINs are six-digit numbers assigned to tax-

payers to help prevent the misuse of their

SSNs on fraudulent federal income tax re-

turns. When you have an IP PIN, it pre-

vents someone else from filing a tax return

with your SSN. To learn more, go to

IRS.gov/IPPIN.

Ways to check on the status of your refund.

•

Go to IRS.gov/Refunds.

•

Download the official IRS2Go app to your

mobile device to check your refund status.

•

Call the automated refund hotline at

800-829-1954.

Note. The IRS can’t issue refunds before

mid-February for returns that claimed the EIC or

the additional child tax credit (ACTC). This ap-

plies to the entire refund, not just the portion as-

sociated with these credits.

Making a tax payment. Go to IRS.gov/

Payments for information on how to make a

payment using any of the following options.

•

IRS Direct Pay: Pay your individual tax bill

or estimated tax payment directly from

your checking or savings account at no

cost to you.

•

Debit or Credit Card: Choose an approved

payment processor to pay online or by

phone.

•

Electronic Funds Withdrawal: Schedule a

payment when filing your federal taxes us-

ing tax return preparation software or

through a tax professional.

•

Electronic Federal Tax Payment System:

Best option for businesses. Enrollment is

required.

•

Check or Money Order: Mail your payment

to the address listed on the notice or in-

structions.

•

Cash: You may be able to pay your taxes

with cash at a participating retail store.

•

Same-Day Wire: You may be able to do

same-day wire from your financial institu-

tion. Contact your financial institution for

availability, cost, and time frames.

Note. The IRS uses the latest encryption

technology to ensure that the electronic pay-

ments you make online, by phone, or from a

mobile device using the IRS2Go app are safe

and secure. Paying electronically is quick, easy,

and faster than mailing in a check or money or-

der.

What if I can’t pay now? Go to IRS.gov/

Payments for more information about your op-

tions.

•

Apply for an online payment agreement

(IRS.gov/OPA) to meet your tax obligation

in monthly installments if you can’t pay

your taxes in full today. Once you complete

the online process, you will receive imme-

diate notification of whether your agree-

ment has been approved.

•

Use the Offer in Compromise Pre-Qualifier

to see if you can settle your tax debt for

less than the full amount you owe. For

more information on the Offer in Compro-

mise program, go to IRS.gov/OIC.

Filing an amended return. Go to IRS.gov/

Form1040X for information and updates.

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Page 12 Publication 551 (December 2022)

Checking the status of your amended re-

turn. Go to IRS.gov/WMAR to track the status

of Form 1040-X amended returns.

Note. It can take up to 3 weeks from the

date you filed your amended return for it to

show up in our system, and processing it can

take up to 16 weeks.

Understanding an IRS notice or letter

you’ve received. Go to IRS.gov/Notices to

find additional information about responding to

an IRS notice or letter.

Note. You can use Schedule LEP (Form

1040), Request for Change in Language Prefer-

ence, to state a preference to receive notices,

letters, or other written communications from

the IRS in an alternative language. You may not

immediately receive written communications in

the requested language. The IRS’s commitment

to LEP taxpayers is part of a multi-year timeline

that is scheduled to begin providing translations

in 2023. You will continue to receive communi-

cations, including notices and letters in English

until they are translated to your preferred lan-

guage.

Contacting your local IRS office. Keep in

mind, many questions can be answered on

IRS.gov without visiting an IRS TAC. Go to

IRS.gov/LetUsHelp for the topics people ask

about most. If you still need help, IRS TACs

provide tax help when a tax issue can’t be han-

dled online or by phone. All TACs now provide

service by appointment, so you’ll know in ad-

vance that you can get the service you need

without long wait times. Before you visit, go to

IRS.gov/TACLocator to find the nearest TAC

and to check hours, available services, and ap-

pointment options. Or, on the IRS2Go app, un-

der the Stay Connected tab, choose the Con-

tact Us option and click on “Local Offices.”

The Taxpayer Advocate

Service (TAS) Is Here To

Help You

What Is TAS?

TAS is an independent organization within the

IRS that helps taxpayers and protects taxpayer

rights. Their job is to ensure that every taxpayer

is treated fairly and that you know and under-

stand your rights under the Taxpayer Bill of

Rights.

How Can You Learn About Your

Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic

rights that all taxpayers have when dealing with

the IRS. Go to TaxpayerAdvocate.IRS.gov to

help you understand what these rights mean to

you and how they apply. These are your rights.

Know them. Use them.

What Can TAS Do for You?

TAS can help you resolve problems that you

can’t resolve with the IRS. And their service is

free. If you qualify for their assistance, you will

be assigned to one advocate who will work with

you throughout the process and will do every-

thing possible to resolve your issue. TAS can

help you if:

•

Your problem is causing financial difficulty

for you, your family, or your business;

•

You face (or your business is facing) an

immediate threat of adverse action; or

•

You’ve tried repeatedly to contact the IRS

but no one has responded, or the IRS

hasn’t responded by the date promised.

How Can You Reach TAS?

TAS has offices in every state, the District of

Columbia, and Puerto Rico. Your local advo-

cate’s number is in your local directory and at

TaxpayerAdvocate.IRS.gov/Contact-Us. You

can also call them at 877-777-4778.

How Else Does TAS Help

Taxpayers?

TAS works to resolve large-scale problems that

affect many taxpayers. If you know of one of

these broad issues, report it to them at IRS.gov/

SAMS.

TAS for Tax Professionals

TAS can provide a variety of information for tax

professionals, including tax law updates and

guidance, TAS programs, and ways to let TAS

know about systemic problems you’ve seen in

your practice.

Low Income Taxpayer

Clinics (LITCs)

LITCs are independent from the IRS. LITCs

represent individuals whose income is below a

certain level and need to resolve tax problems

with the IRS, such as audits, appeals, and tax

collection disputes. In addition, LITCs can pro-

vide information about taxpayer rights and re-

sponsibilities in different languages for individu-

als who speak English as a second language.

Services are offered for free or a small fee for

eligible taxpayers. To find an LITC near you, go

to TaxpayerAdvocate.IRS.gov/about-us/Low-

Income-Taxpayer-Clinics-LITC or see IRS Pub.

4134, Low Income Taxpayer Clinic List.

Glossary

Amortization: A ratable deduction

for the cost of certain intangible

property over the period specified

by law. Examples of costs that can

be amortized are goodwill, agree-

ment not to compete, and research

and mining exploration costs.

Business assets: Property used in

the conduct of a trade or business,

such as business machinery and of-

fice furniture.

Capitalization: Adding costs, such

as improvements, to the basis of as-

sets.

Depletion: Yearly deduction al-

lowed to recover your investment in

minerals in place or standing timber.

To take the deduction, you must

have the right to income from the ex-

traction and sale of the minerals or

the cutting of the timber.

Depreciation: Ratable deduction

allowed over a number of years to

recover your basis in property that is

used more than 1 year for business

or income producing purposes.

Fair market value (FMV): FMV is

the price at which property would

change hands between a buyer and

a seller, neither having to buy or sell,

and both having reasonable knowl-

edge of all necessary facts.

Going concern value: Going con-

cern value is the additional value

that attaches to property because

the property is an integral part of an

ongoing business activity. It includes

value based on the ability of a busi-

ness to continue to function and

generate income even though there

is a change in ownership.

Goodwill: Goodwill is the value of a

trade or business based on expec-

ted continued customer patronage

due to its name, reputation, or any

other factor.

Intangible property: Property that

can't be perceived by the senses

such as goodwill, patents, copy-

rights, etc.

Like-kind property: Items of prop-

erty with the same nature or charac-

ter. The grade or quality of the prop-

erties doesn't matter. Examples are

two vacant plots of land.

Modified Accelerated Cost Re-

covery System (MACRS) prop-

erty: Buildings (and their structural

components) and other tangible de-

preciable property placed in service

after 1986 that is used in a trade or

business or for the production of in-

come.

Personal property: Property, such

as machinery, equipment, or furni-

ture, that isn't real property.

Real property: Land and generally

anything erected on, growing on, or

attached to land, for example, a

building.

Recapture: Amount of depreciation

or section 179 deduction that must

be reported as ordinary income

when property is sold at a gain.

Section 179 deduction: This is a

special deduction allowed against

the cost of certain property pur-

chased for use in the active conduct

of a trade or business.

Section 197 intangibles: Certain

intangibles held in connection with

the conduct of a trade or business or

an activity entered into for profit, in-

cluding goodwill, going concern

value, patents, copyrights, formulas,

franchises, trademarks, and trade

names.

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Publication 551 (December 2022) Page 13

Tangible property: This is prop-

erty that can be seen or touched,

such as furniture and buildings.

Unstated interest: The part of the

sales price treated as interest when

an installment contract provides for

little or no interest.

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Page 14 Publication 551 (December 2022)

To help us develop a more useful index, please let us know if you have ideas for index entries.

See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

Index

Adjusted basis:

Adoption tax benefits 6

Assessment for local

improvements 5

Canceled debt 6

Casualty and theft losses 5

Credit for qualified electric

vehicles 5

Decreases to 5

Depreciation 6

Easements 5

Employer-provided child care 6

Example 6

Gain from sale of home 6

Gas-guzzler tax 6

Increases to 5

Section 179 deduction 6

Subsidies for energy

conservation 6

Adoption tax benefits 6

Allocating basis 4

Assistance (See Tax help)

Assumption of mortgage 3

Business acquired 4

Business assets 3

Canceled debt 6

Casualty and theft losses 5

Change to business use 10

Community property 10

Constructing assets 3

Copyrights 4

Cost basis:

Allocating basis 4

Assumption of mortgage 3

Capitalized costs 3, 5

Loans, low or no interest 2

Real estate taxes 2

Real property 2

Settlement costs (fees) 2

Cost Basis 2

Decreases to basis 5

Demolition of building 4

Depreciation 6

Easements 5

Employer-provided child care 6

Exchanges:

Involuntary 7

Like-kind 8

Nontaxable 8

Partial business use of

property 9

Taxable 7

Franchises 4

Gain from sale of home 6

Gifts, property received 9

Group of assets acquired 4

Inherited property 10

Intangible assets 4

Involuntary exchanges 7

Land and buildings 4

Loans, low or no interest 2

Nontaxable exchanges:

Like-kind 8

Partial 8

Partially nontaxable

exchanges 8

Patents 4

Points 3

Property changed to business

use 10

Property received as a gift 9

Property received for services:

Bargain purchases 7

Fair market value 7

Restricted property 7

Property transferred from a

spouse 9

Publications (See Tax help)

Real estate taxes 2

Real property 2

Settlement costs (fees) 2

Special-use valuation 10

Spouse, property transferred

from 9

Stocks and bonds 2

Subdivided lots 4

Tax help 11

Taxable exchanges 7

Trade or business acquired 4

Trademarks and trade names 4

Trading property (see

Exchanges) 7

Uniform capitalization rules:

Activities subject to the rules 3

Exceptions 3

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Publication 551 (December 2022) Page 15