Which term means the purchase price paid for an asset?

Which term means the purchase price paid for an asset?

• A. Capital gains taxes
• B. Basis
• C. Fee simple or fee simple absolute
• D. Joint tenancy

Answer: (B)

The purchase price paid for an asset is called its basis. In tax and estate planning terms, basis is the starting point for calculating gain or loss when you sell or dispose of the asset. Your basis is typically what you paid for the asset, plus any adjustments such as improvements or certain costs; for real estate, improvements add to basis, while depreciation (for business use) reduces it. This concept matters because when you sell, the gain or loss equals the sale price minus your adjusted basis, and that determines your capital gains taxes. For context, inherited property often gets a stepped-up basis to fair market value at death, which can reduce gain for heirs, while gifts may carry over the donor’s basis. The other terms refer to different ideas: capital gains taxes are the tax on the profit, not the purchase price; fee simple is a type of ownership interest; joint tenancy is a form of co-ownership.

The purchase price paid for an asset is called its basis. In tax and estate planning terms, basis is the starting point for calculating gain or loss when you sell or dispose of the asset. Your basis is typically what you paid for the asset, plus any adjustments such as improvements or certain costs; for real estate, improvements add to basis, while depreciation (for business use) reduces it. This concept matters because when you sell, the gain or loss equals the sale price minus your adjusted basis, and that determines your capital gains taxes. For context, inherited property often gets a stepped-up basis to fair market value at death, which can reduce gain for heirs, while gifts may carry over the donor’s basis. The other terms refer to different ideas: capital gains taxes are the tax on the profit, not the purchase price; fee simple is a type of ownership interest; joint tenancy is a form of co-ownership.