Right. Actually, you pay capital gains tax on the $1000.00 and deduct 100% of the cost of the sale as a cost of doing business.

"Basis" is base amount used to figure capital gains. For instance, the basis for personally held stock is the original purchase price. You pay capital gains on the difference between the purchase price and the selling price when it's sold or traded. In the case of a depreciated asset, the basis is the depreciated value of the asset when it is liquidated.

The basis on inherited property is the value of the asset when it is inherited. Say you inherit stock from a family member that had origionally cost $50 and is now worth $1000.00. The basis when the relative was alive and was still the owner of the stock
would have been $50.00, and capital gains tax would have been owed on $950.00 in gains if the asset were sold by the relative.

The basis becomes $1000.00, or the fair market value at the time of the inheritance for you, the new owner. You would owe capital gains tax on the difference between $1000.00 and the selling price when traded or sold.

Gets a little hairy. Ya gotta love "Uncle Sam".


Russ

[This message has been edited by captain Russ (edited 11-17-2009).]