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Basis (or cost basis), as used in United States tax law, is the original cost of property, adjusted for factors such as depreciation. When a property is sold, the taxpayer pays/(saves) taxes on a capital gain /(loss) that equals the amount realized on the sale minus the sold property's basis.
In accounting, the revenue recognition principle states that revenues are earned and recognized when they are realized or realizable, no matter when cash is received. It is a cornerstone of accrual accounting together with the matching principle. Together, they determine the accounting period in which revenues and expenses are recognized. [1]
Amount realized, in US federal income tax law, is defined by section 1001(b) of Internal Revenue Code. It is one of two variables in the formula used to compute gains and losses to determine gross income for income tax purposes. The excess of the amount realized over the adjusted basis is the amount of realized gain (if positive) or realized ...
Futures contracts and cost basis. Calculating the cost basis for futures contracts involves assessing the difference between a commodity’s local spot price and its associated futures price. For ...
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If the asset remains unsold, then the capital gain is unrealized and capital gains tax is deferred. For example, suppose an investor buys 10 shares of stock in their favorite shipping company at ...
The original basis of an asset is usually the value of a taxpayer's investment in the asset. (See IRC § 1012). When a taxpayer purchases an asset, the original basis is the purchase price, or cost, of the asset. Different factors, including tax deductions for depreciation, can lead to an adjusted or recomputed basis for the asset.
In financial accounting (CON 8.4 [1]), a gain is when the market value of an asset exceeds the purchase price of that asset. The gain is unrealized until the asset is sold for cash, at which point it becomes a realized gain. This is an important distinction for tax purposes, as only realized gains are subject to tax.