Business Basis: Multiply the basis of your item by the percentage you use the item for business purposes. The result is your business basis of the item.
Tax Basis (Adjusted Basis): Your basis, reduced by any Section 179 or other depreciation you have ever taken on the item for tax purposes.
Examples:
Joel has a computer. To figure his basis, he needs to know what he paid for it (plus sales tax). He paid $1000. $1000 is his basis.
(Improvement) He adds a larger hard drive to the computer for a cost of $100. His basis is now $1100 (1000 + 100).
Joel only uses the computer , with the larger hard drive, 70% for business purposes. His basis is $1100. But, his business basis is $770 (1100 - 70%).
When he is ready to sell the computer, he will need to know his tax, or adjusted, basis. Over the years, he has depreciated the computer using straight-line depreciation. The amounts he has taken thus far, add up to $440. He subtracts that from his $1100 basis. His tax basis becomes $660.His basis is $1100. His business basis is $770. His tax basis is currently $660.
If Joel had never taken any deductions on his computer, his tax basis would be his basis, reduced by the amount he could have depreciated it using straight-line depreciation tables.
Permission to use or excerpt with proper attribution.
Simon Elisha, author, Taxes for Online Sellers—
No comments:
Post a Comment