Basis Value

AAA

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.










RELATED TERMS
  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Taxation

    Taxation refers to the act of a taxing authority actually levying ...
  3. Capitalize

    An accounting method used to delay the recognition of expenses ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  5. Basis Point - BPS

    A unit that is equal to 1/100th of 1%, and is used to denote ...
  6. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
Related Articles
  1. Retirement

    Footnotes: Early Warning Signs For Investors

  2. Fundamental Analysis

    Understanding Pro-Forma Earnings

  3. Fundamental Analysis

    Detecting Accounting Manipulation

  4. Markets

    Operating Cash Flow: Better Than Net ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center