The basis of purchased property is usually its cost plus certain other expenses (such as sales tax, excise taxes, recording fees, capitalized legal and accounting fees, and certain other capitalized costs related to buying or producing property). This is referred to as a cost basis. Cost is the amount paid in cash, debt obligations, other property, or services. If property is acquired by gift, inheritance, in a tax-free reorganization, or in some way other than purchasing it, the property will have a basis other than its cost (for example, see carryover basis).

For more information about cost basis transactions, see Practice Notes: