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Basis (Tax)

Gains, losses, and depreciation deductions are computed from this point. Typically the cost, or purchase price, of an asset.

Example:  Danielle purchases land for $120,000 and erects a store for $935,000.  Her tax basis is $1,055,000.  If she then sells the property for $1,005,000, she has a $50,000 gain.  If she had earlier claimed depreciation for a total of $50,000, however, then her tax basis would have been adjusted by that $50,000, which would have resulted in a total gain of $100,000.  Danielle thus would have gained tax benefits early on, but at the time of sale, she will be subject to some degree of depreciation recapture at the time of sale, depending on how depreciation was calculated.