Basis Value

Definition of 'Basis Value'


The price of a fixed asset for taxation purposes. Basis value is an asset's base price upon which depreciation and amortization is calculated. It also forms the base price for a fixed asset to which capitalized expenses are added.

Investopedia explains 'Basis Value'


Basis value is especially important when it comes to disposal of an asset. For a given sale price, the higher the basis value and consequently depreciated book value, the lower will be the taxable capital gain.

While the accounting departments of large companies closely track the basis values of their fixed assets, small companies that do not have full-time accountants may need to ensure that the basis value of their assets is accurate, and maintain all records in this connection.

Improperly recording expenses, or failing to record them properly, may lead to inaccuracies and over-payment of tax. For example, a fixed asset for which capitalized expenses worth $50,000 have not been recorded, may have a book value (after depreciation) of $100,000 after five years. If it is subsequently sold for $130,000, the taxable gain is $30,000. On the other hand, if the capitalized expenses had been properly recorded, its book value would be significantly higher than $100,000 after five years, and the taxable gain, if it were sold for $130,000 would be much less than $30,000.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  2. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  3. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
  4. Class Action

    An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
  5. Retail Sales

    An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country. In the U.S., the retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce.
  6. Okun's Law

    The relationship between an economy's unemployment rate and its gross national product (GNP). Twentieth-century economist Arthur Okun developed this idea, which states that when unemployment falls by 1%, GNP rises by 3%. However, the law only holds true for the U.S.
Trading Center