For federal income taxation purposes, determining the basis depends on how the asset in question was acquired.
This provision shields the appreciation in value of the asset during the life of the decedent from any income taxation whatsoever.
For this reason, IRC § 1001(a) provides that computing gain requires determining the amount realized from the sale or disposition of property minus the adjusted basis.
Capital improvements (such as adding a deck to your house) increase the asset's basis while depreciation deductions (statutory deductions that reduce the taxpayer's taxable income for a given year) diminish the asset's basis.
The Emergency Economic Stabilization Act of 2008 – popularly known as the “bailout bill” – was signed into law on October 3, 2008, to address the mounting global financial crisis.
Financial intermediaries need to develop a compliance plan now, since penalties for non-compliance are stiff – up to $350,000 per year for incorrect Form 1099-B cost basis reporting,[3] and unlimited penalties for intentional disregard of the new requirements.
Note that these examples highlight selected aspects of the new legislation, and are not meant to provide a complete view of the compliance issues facing any specific organization.
Average cost single category is widely used by mutual funds, as it is the simplest in terms of record keeping (only total basis need be tracked) and sale (no specifying required), and results in moderate tax.
HIFO sells the shares with the highest cost first in an attempt to minimize the tax bill.
Transfer agents and broker/dealers are now required by law to report the gains or losses of any sales of covered shares to the IRS.