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Basis (Cost Basis)

The Basis or Cost Basis of a property is the original amount paid by an individual or entity. The basis is deducted from the sale price to determine the amount of gain for tax purposes. A home's basis can be reduced if depreciation is taken during the time of ownership, as might be the case for an investment property. Some improvements, such as solar panels or a room addition, add to the basis. Other items, such as new paint or replacing an air conditioner, are considered maintenance and don't add to the basis. The IRS rules about determining the basis of property are complex and may require the help of a tax professional.