Basis: What You Need to Know

“Basis” is a term used frequently in tax law. But for many, the term is unfamiliar and intimidating—perhaps something they feel is better left to a certified public accountant to worry about. Nevertheless, a basic understanding of the concept can be very helpful for understanding important estate planning strategies used by your attorney and financial or tax advisors. So what is basis, and why is it important to be familiar with the term, particularly as it relates to your taxes and estate planning? A technical definition of basis is “the value assigned to a taxpayer’s investment in property and used primarily for computing gain or loss from a transfer of the property. When the assigned value represents the cost of acquiring the property, it is also called cost basis.”

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[1] Basis, Black’s Law Dictionary (8th ed. 2004).