Basis is a business term used to identify the value of an individual or entity’s investment in an entrepreneurial endeavor. It is customarily linked to taxation as this term is used by the Internal Revenue Code to determine gain or loss. To further compound its meaning ‘basis’ is sometimes substituted for the term ‘equity’.
Basis is a term referring to the book value of investments (securities) or other assets. Basis includes the original purchase price and fees associated with the purchase and maintenance of the asset. In addition other costs are included in the basis calculation including time based costs (interests, brokerage maintenance costs), registration and government taxes. This term is most commonly found within the tax code and is used to determine gain or loss associated with the sale of the particular investment.
I love the game of Monopoly. My sons enjoy playing it too. But we all have the same complaint about the game; it takes forever to accumulate all the wealth and ultimately win the game. Being a landlord means the same thing. It will take a long time to accumulate wealth. So for those of you considering becoming a landlord, there are certain business dynamics and economics you should understand.
Code Section 465 of the Internal Revenue Code defines ‘At-Risk’ as the financial value the taxpayer has in jeopardy related to the business activity the taxpayer is invested in as some form of an owner. Effectively, the taxpayer may only take losses on his tax return contingent on the loss being directly tied to invested dollars with some form of tax basis.