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basis definition
the original cost of an asset to be used to determine the amount of capital gain
tax upon its sale. An "adjusted basis" includes improvements, expenses, and damages
between the time the original basis (price) is established and transfer (sale) of
the asset. "Stepped up basis" means that the original basis of an asset (especially
real property) will be stepped up to current value at the time of the death of the
owner, and thus keep down capital gain taxes if the beneficiary of the dead person
sells the asset. Example Daniel Oldboy buys a house for $30,000, and when he dies
the place is worth $250,000. When his son and heir receives the property, the son
can sell it for $250,000 with no capital gains tax, but if Dad had sold it before
his death there would have been capital gains on $220,000. It can be more complicated
than this simple example with assets jointly held with a spouse, exchanges of property,
and other variations which require professional assistance.
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