TITLE 26 - US CODE - PART II - BASIS RULES OF GENERAL APPLICATION

26 USC 1011 - Adjusted basis for determining gain or loss

(a) General rule 
The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis (determined under section 1012 or other applicable sections of this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses)), adjusted as provided in section 1016.
(b) Bargain sale to a charitable organization 
If a deduction is allowable under section 170 (relating to charitable contributions) by reason of a sale, then the adjusted basis for determining the gain from such sale shall be that portion of the adjusted basis which bears the same ratio to the adjusted basis as the amount realized bears to the fair market value of the property.

26 USC 1012 - Basis of property - cost

The basis of property shall be the cost of such property, except as otherwise provided in this subchapter and subchapters C (relating to corporate distributions and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses). The cost of real property shall not include any amount in respect of real property taxes which are treated under section 164 (d) as imposed on the taxpayer.

26 USC 1013 - Basis of property included in inventory

If the property should have been included in the last inventory, the basis shall be the last inventory value thereof.

26 USC 1014 - Basis of property acquired from a decedent

(a) In general 
Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedents death by such person, be
(1) the fair market value of the property at the date of the decedents death,
(2) in the case of an election under either section 2032 or section 811(j) of the Internal Revenue Code of 1939 where the decedent died after October 21, 1942, its value at the applicable valuation date prescribed by those sections,
(3) in the case of an election under section 2032A, its value determined under such section, or
(4) to the extent of the applicability of the exclusion described in section 2031 (c), the basis in the hands of the decedent.
(b) Property acquired from the decedent 
For purposes of subsection (a), the following property shall be considered to have been acquired from or to have passed from the decedent:
(1) Property acquired by bequest, devise, or inheritance, or by the decedents estate from the decedent;
(2) Property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent, with the right reserved to the decedent at all times before his death to revoke the trust;
(3) In the case of decedents dying after December 31, 1951, property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent with the right reserved to the decedent at all times before his death to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust;
(4) Property passing without full and adequate consideration under a general power of appointment exercised by the decedent by will;
(5) In the case of decedents dying after August 26, 1937, and before January 1, 2005, property acquired by bequest, devise, or inheritance or by the decedents estate from the decedent, if the property consists of stock or securities of a foreign corporation, which with respect to its taxable year next preceding the date of the decedents death was, under the law applicable to such year, a foreign personal holding company. In such case, the basis shall be the fair market value of such property at the date of the decedents death or the basis in the hands of the decedent, whichever is lower;
(6) In the case of decedents dying after December 31, 1947, property which represents the surviving spouses one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedents gross estate under chapter 11 of subtitle B (section 2001 and following, relating to estate tax) or section 811 of the Internal Revenue Code of 1939;
(7) In the case of decedents dying after October 21, 1942, and on or before December 31, 1947, such part of any property, representing the surviving spouses one-half share of property held by a decedent and the surviving spouse under the community property laws of any State, or possession of the United States or any foreign country, as was included in determining the value of the gross estate of the decedent, if a tax under chapter 3 of the Internal Revenue Code of 1939 was payable on the transfer of the net estate of the decedent. In such case, nothing in this paragraph shall reduce the basis below that which would exist if the Revenue Act of 1948 had not been enacted;
(8) In the case of decedents dying after December 31, 1950, and before January 1, 1954, property which represents the survivors interest in a joint and survivors annuity if the value of any part of such interest was required to be included in determining the value of decedents gross estate under section 811 of the Internal Revenue Code of 1939;
(9) In the case of decedents dying after December 31, 1953, property acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of the decedents gross estate under chapter 11 of subtitle B or under the Internal Revenue Code of 1939. In such case, if the property is acquired before the death of the decedent, the basis shall be the amount determined under subsection (a) reduced by the amount allowed to the taxpayer as deductions in computing taxable income under this subtitle or prior income tax laws for exhaustion, wear and tear, obsolescence, amortization, and depletion on such property before the death of the decedent. Such basis shall be applicable to the property commencing on the death of the decedent. This paragraph shall not apply to
(A) annuities described in section 72;
(B) property to which paragraph (5) would apply if the property had been acquired by bequest; and
(C) property described in any other paragraph of this subsection.
(10) Property includible in the gross estate of the decedent under section 2044 (relating to certain property for which marital deduction was previously allowed). In any such case, the last 3 sentences of paragraph (9) shall apply as if such property were described in the first sentence of paragraph (9).
(c) Property representing income in respect of a decedent 
This section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691.
(d) Special rule with respect to DISC stock 
If stock owned by a decedent in a DISC or former DISC (as defined in section 992 (a)) acquires a new basis under subsection (a), such basis (determined before the application of this subsection) shall be reduced by the amount (if any) which would have been included in gross income under section 995 (c) as a dividend if the decedent had lived and sold the stock at its fair market value on the estate tax valuation date. In computing the gain the decedent would have had if he had lived and sold the stock, his basis shall be determined without regard to the last sentence of section 996 (e)(2) (relating to reductions of basis of DISC stock). For purposes of this subsection, the estate tax valuation date is the date of the decedents death or, in the case of an election under section 2032, the applicable valuation date prescribed by that section.
(e) Appreciated property acquired by decedent by gift within 1 year of death 

(1) In general 
In the case of a decedent dying after December 31, 1981, if
(A) appreciated property was acquired by the decedent by gift during the 1-year period ending on the date of the decedents death, and
(B) such property is acquired from the decedent by (or passes from the decedent to) the donor of such property (or the spouse of such donor),

the basis of such property in the hands of such donor (or spouse) shall be the adjusted basis of such property in the hands of the decedent immediately before the death of the decedent.

(2) Definitions 
For purposes of paragraph (1)
(A) Appreciated property 
The term appreciated property means any property if the fair market value of such property on the day it was transferred to the decedent by gift exceeds its adjusted basis.
(B) Treatment of certain property sold by estate 
In the case of any appreciated property described in subparagraph (A) of paragraph (1) sold by the estate of the decedent or by a trust of which the decedent was the grantor, rules similar to the rules of paragraph (1) shall apply to the extent the donor of such property (or the spouse of such donor) is entitled to the proceeds from such sale.
(f) Termination 
This section shall not apply with respect to decedents dying after December 31, 2009.

26 USC 1015 - Basis of property acquired by gifts and transfers in trust

(a) Gifts after December 31, 1920 
If the property was acquired by gift after December 31, 1920, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the fair market value of the property at the time of the gift, then for the purpose of determining loss the basis shall be such fair market value. If the facts necessary to determine the basis in the hands of the donor or the last preceding owner are unknown to the donee, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or any other person cognizant thereof. If the Secretary finds it impossible to obtain such facts, the basis in the hands of such donor or last preceding owner shall be the fair market value of such property as found by the Secretary as of the date or approximate date at which, according to the best information that the Secretary is able to obtain, such property was acquired by such donor or last preceding owner.
(b) Transfer in trust after December 31, 1920 
If the property was acquired after December 31, 1920, by a transfer in trust (other than by a transfer in trust by a gift, bequest, or devise), the basis shall be the same as it would be in the hands of the grantor increased in the amount of gain or decreased in the amount of loss recognized to the grantor on such transfer under the law applicable to the year in which the transfer was made.
(c) Gift or transfer in trust before January 1, 1921 
If the property was acquired by gift or transfer in trust on or before December 31, 1920, the basis shall be the fair market value of such property at the time of such acquisition.
(d) Increased basis for gift tax paid 

(1) In general 
If
(A) the property is acquired by gift on or after September 2, 1958, the basis shall be the basis determined under subsection (a), increased (but not above the fair market value of the property at the time of the gift) by the amount of gift tax paid with respect to such gift, or
(B) the property was acquired by gift before September 2, 1958, and has not been sold, exchanged, or otherwise disposed of before such date, the basis of the property shall be increased on such date by the amount of gift tax paid with respect to such gift, but such increase shall not exceed an amount equal to the amount by which the fair market value of the property at the time of the gift exceeded the basis of the property in the hands of the donor at the time of the gift.
(2) Amount of tax paid with respect to gift 
For purposes of paragraph (1), the amount of gift tax paid with respect to any gift is an amount which bears the same ratio to the amount of gift tax paid under chapter 12 with respect to all gifts made by the donor for the calendar year (or preceding calendar period) in which such gift is made as the amount of such gift bears to the taxable gifts (as defined in section 2503 (a) but computed without the deduction allowed by section 2521) made by the donor during such calendar year or period. For purposes of the preceding sentence, the amount of any gift shall be the amount included with respect to such gift in determining (for the purposes of section 2503 (a)) the total amount of gifts made during the calendar year or period, reduced by the amount of any deduction allowed with respect to such gift under section 2522 (relating to charitable deduction) or under section 2523 (relating to marital deduction).
(3) Gifts treated as made one-half by each spouse 
For purposes of paragraph (1), where the donor and his spouse elected, under section 2513 to have the gift considered as made one-half by each, the amount of gift tax paid with respect to such gift under chapter 12 shall be the sum of the amounts of tax paid with respect to each half of such gift (computed in the manner provided in paragraph (2)).
(4) Treatment as adjustment to basis 
For purposes of section 1016 (b), an increase in basis under paragraph (1) shall be treated as an adjustment under section 1016 (a).
(5) Application to gifts before 1955 
With respect to any property acquired by gift before 1955, references in this subsection to any provision of this title shall be deemed to refer to the corresponding provision of the Internal Revenue Code of 1939 or prior revenue laws which was effective for the year in which such gift was made.
(6) Special rule for gifts made after December 31, 1976 

(A) In general 
In the case of any gift made after December 31, 1976, the increase in basis provided by this subsection with respect to any gift for the gift tax paid under chapter 12 shall be an amount (not in excess of the amount of tax so paid) which bears the same ratio to the amount of tax so paid as
(i) the net appreciation in value of the gift, bears to
(ii) the amount of the gift.
(B) Net appreciation 
For purposes of paragraph (1), the net appreciation in value of any gift is the amount by which the fair market value of the gift exceeds the donors adjusted basis immediately before the gift.
(e) Gifts between spouses 
In the case of any property acquired by gift in a transfer described in section 1041 (a), the basis of such property in the hands of the transferee shall be determined under section 1041 (b)(2) and not this section.

26 USC 1016 - Adjustments to basis

(a) General rule 
Proper adjustment in respect of the property shall in all cases be made
(1) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made
(A) for taxes or other carrying charges described in section 266, or
(B) for expenditures described in section 173 (relating to circulation expenditures),

for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years;

(2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount
(A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and
(B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayers taxes under this subtitle (other than chapter 2, relating to tax on self-employment income), or prior income, war-profits, or excess-profits tax laws,

but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under the straight line method. Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion allowance was based on discovery value or a percentage of income, then the adjustment for depletion for such year shall be based on the depletion which would have been allowable for such year if computed without reference to discovery value or a percentage of income;

(3) in respect of any period
(A) before March 1, 1913,
(B) since February 28, 1913, during which such property was held by a person or an organization not subject to income taxation under this chapter or prior income tax laws,
(C) since February 28, 1913, and before January 1, 1958, during which such property was held by a person subject to tax under part I of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply, and
(D) since February 28, 1913, during which such property was held by a person subject to tax under part II[1] of subchapter L (or the corresponding provisions of prior income tax laws), to the extent that paragraph (2) does not apply,

for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent sustained;

(4) in the case of stock (to the extent not provided for in the foregoing paragraphs) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis (not including distributions made by a corporation which was classified as a personal service corporation under the provisions of the Revenue Act of 1918 (40 Stat. 1057), or the Revenue Act of 1921 (42 Stat. 227), out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Revenue Act of 1918 or 1921);
(5) in the case of any bond (as defined in section 171 (d)) the interest on which is wholly exempt from the tax imposed by this subtitle, to the extent of the amortizable bond premium disallowable as a deduction pursuant to section 171 (a)(2), and in the case of any other bond (as defined in section 171 (d)) to the extent of the deductions allowable pursuant to section 171 (a)(1) (or the amount applied to reduce interest payments under section 171 (e)(2)) with respect thereto;
(6) in the case of any municipal bond (as defined in section 75 (b)), to the extent provided in section 75 (a)(2);
(7) in the case of a residence the acquisition of which resulted, under section 1034 (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997), in the nonrecognition of any part of the gain realized on the sale, exchange, or involuntary conversion of another residence, to the extent provided in section 1034 (e) (as so in effect);
(8) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 77, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability;
(9) for amounts allowed as deductions as deferred expenses under section 616 (b) (relating to certain expenditures in the development of mines) and resulting in a reduction of the taxpayers taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years;
[(10) Repealed. Pub. L. 94–455, title XIX, § 1901(b)(21)(G), Oct. 4, 1976, 90 Stat. 1798]
(11) for deductions to the extent disallowed under section 268 (relating to sale of land with unharvested crops), notwithstanding the provisions of any other paragraph of this subsection;
(12) to the extent provided in section 28(h) of the Internal Revenue Code of 1939 in the case of amounts specified in a shareholders consent made under section 28 of such code;
[(13) Repealed. Pub. L. 108–357, title IV, § 413(c)(19), Oct. 22, 2004, 118 Stat. 1509]
(14) for amounts allowed as deductions as deferred expenses under section 174 (b)(1) (relating to research and experimental expenditures) and resulting in a reduction of the taxpayers taxes under this subtitle, but not less than the amounts allowable under such section for the taxable year and prior years;
(15) for deductions to the extent disallowed under section 272 (relating to disposal of coal or domestic iron ore), notwithstanding the provisions of any other paragraph of this subsection;
(16) in the case of any evidence of indebtedness referred to in section 811 (b) (relating to amortization of premium and accrual of discount in the case of life insurance companies), to the extent of the adjustments required under section 811 (b) (or the corresponding provisions of prior income tax laws) for the taxable year and all prior taxable years;
(17) to the extent provided in section 1367 in the case of stock of, and indebtedness owed to, shareholders of an S corporation;
(18) to the extent provided in section 961 in the case of stock in controlled foreign corporations (or foreign corporations which were controlled foreign corporations) and of property by reason of which a person is considered as owning such stock;
(19) to the extent provided in section 50 (c), in the case of expenditures with respect to which a credit has been allowed under section 38;
(20) for amounts allowed as deductions under section 59 (e) (relating to optional 10-year writeoff of certain tax preferences);
(21) to the extent provided in section 1059 (relating to reduction in basis for extraordinary dividends);
(22) in the case of qualified replacement property the acquisition of which resulted under section 1042 in the nonrecognition of any part of the gain realized on the sale or exchange of any property, to the extent provided in section 1042 (d),2
(23) in the case of property the acquisition of which resulted under section 1043, 1044, 1045, or 1397B in the nonrecognition of any part of the gain realized on the sale of other property, to the extent provided in section 1043 (c), 1044 (d), 1045 (b)(3), or 1397B (b)(4), as the case may be,[2]
(24) to the extent provided in section 179A (e)(6)(A),2
(25) to the extent provided in section 30 (d)(1),2
(26) to the extent provided in sections 23 (g) and 137 (e),2
(27) in the case of a residence with respect to which a credit was allowed under section 1400C, to the extent provided in section 1400C (h),2
(28) in the case of a facility with respect to which a credit was allowed under section 45F, to the extent provided in section 45F (f)(1),2
(29) in the case of railroad track with respect to which a credit was allowed under section 45G, to the extent provided in section 45G (e)(3),2
(30) to the extent provided in section 179B (c),2
(31) to the extent provided in section 179D (e),2
(32) to the extent provided in section 45L (e), in the case of amounts with respect to which a credit has been allowed under section 45L,2
(33) to the extent provided in section 25C (f), in the case of amounts with respect to which a credit has been allowed under section 25C,2
(34) to the extent provided in section 25D (f), in the case of amounts with respect to which a credit has been allowed under section 25D,2
(35) to the extent provided in section 30B (h)(4),2 and
(36) to the extent provided in section 30C (e)(1).
(b) Substituted basis 
Whenever it appears that the basis of property in the hands of the taxpayer is a substituted basis, then the adjustments provided in subsection (a) shall be made after first making in respect of such substituted basis proper adjustments of a similar nature in respect of the period during which the property was held by the transferor, donor, or grantor, or during which the other property was held by the person for whom the basis is to be determined. A similar rule shall be applied in the case of a series of substituted bases.
(c) Increase in basis of property on which additional estate tax is imposed 

(1) Tax imposed with respect to entire interest 
If an additional estate tax is imposed under section 2032A (c)(1) with respect to any interest in property and the qualified heir makes an election under this subsection with respect to the imposition of such tax, the adjusted basis of such interest shall be increased by an amount equal to the excess of
(A) the fair market value of such interest on the date of the decedents death (or the alternate valuation date under section 2032, if the executor of the decedents estate elected the application of such section), over
(B) the value of such interest determined under section 2032A (a).
(2) Partial dispositions 

(A) In general 
In the case of any partial disposition for which an election under this subsection is made, the increase in basis under paragraph (1) shall be an amount
(i) which bears the same ratio to the increase which would be determined under paragraph (1) (without regard to this paragraph) with respect to the entire interest, as
(ii) the amount of the tax imposed under section 2032A (c)(1) with respect to such disposition bears to the adjusted tax difference attributable to the entire interest (as determined under section 2032A (c)(2)(B)).
(B) Partial disposition 
For purposes of subparagraph (A), the term partial disposition means any disposition or cessation to which subsection (c)(2)(D), (h)(1)(B), or (i)(1)(B) of section 2032A applies.
(3) Time adjustment made 
Any increase in basis under this subsection shall be deemed to have occurred immediately before the disposition or cessation resulting in the imposition of the tax under section 2032A (c)(1).
(4) Special rule in the case of substituted property 
If the tax under section 2032A (c)(1) is imposed with respect to qualified replacement property (as defined in section 2032A (h)(3)(B)) or qualified exchange property (as defined in section 2032A (i)(3)), the increase in basis under paragraph (1) shall be made by reference to the property involuntarily converted or exchanged (as the case may be).
(5) Election 

(A) In general 
An election under this subsection shall be made at such time and in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable.
(B) Interest on recaptured amount 
If an election is made under this subsection with respect to any additional estate tax imposed under section 2032A (c)(1), for purposes of section 6601 (relating to interest on underpayments), the last date prescribed for payment of such tax shall be deemed to be the last date prescribed for payment of the tax imposed by section 2001 with respect to the estate of the decedent (as determined for purposes of section 6601).
(d) Reduction in basis of automobile on which gas guzzler tax was imposed 
If
(1) the taxpayer acquires any automobile with respect to which a tax was imposed by section 4064, and
(2) the use of such automobile by the taxpayer begins not more than 1 year after the date of the first sale for ultimate use of such automobile,

the basis of such automobile shall be reduced by the amount of the tax imposed by section 4064 with respect to such automobile. In the case of importation, if the date of entry or withdrawal from warehouse for consumption is later than the date of the first sale for ultimate use, such later date shall be substituted for the date of such first sale in the preceding sentence.

(e) Cross reference 
For treatment of separate mineral interests as one property, see section 614.
[1] See References in Text note below.
[2] So in original. The comma probably should be a semicolon.

26 USC 1017 - Discharge of indebtedness

(a) General rule 
If
(1) an amount is excluded from gross income under subsection (a) of section 108 (relating to discharge of indebtedness), and
(2) under subsection (b)(2)(E), (b)(5), or (c)(1) of section 108, any portion of such amount is to be applied to reduce basis,

then such portion shall be applied in reduction of the basis of any property held by the taxpayer at the beginning of the taxable year following the taxable year in which the discharge occurs.

(b) Amount and properties determined under regulations 

(1) In general 
The amount of reduction to be applied under subsection (a) (not in excess of the portion referred to in subsection (a)), and the particular properties the bases of which are to be reduced, shall be determined under regulations prescribed by the Secretary.
(2) Limitation in title 11 case or insolvency 
In the case of a discharge to which subparagraph (A) or (B) of section 108 (a)(1) applies, the reduction in basis under subsection (a) of this section shall not exceed the excess of
(A) the aggregate of the bases of the property held by the taxpayer immediately after the discharge, over
(B) the aggregate of the liabilities of the taxpayer immediately after the discharge.

The preceding sentence shall not apply to any reduction in basis by reason of an election under section 108 (b)(5).

(3) Certain reductions may only be made in the basis of depreciable property 

(A) In general 
Any amount which under subsection (b)(5) or (c)(1) of section 108 is to be applied to reduce basis shall be applied only to reduce the basis of depreciable property held by the taxpayer.
(B) Depreciable property 
For purposes of this section, the term depreciable property means any property of a character subject to the allowance for depreciation, but only if a basis reduction under subsection (a) will reduce the amount of depreciation or amortization which otherwise would be allowable for the period immediately following such reduction.
(C) Special rule for partnership interests 
For purposes of this section, any interest of a partner in a partnership shall be treated as depreciable property to the extent of such partners proportionate interest in the depreciable property held by such partnership. The preceding sentence shall apply only if there is a corresponding reduction in the partnerships basis in depreciable property with respect to such partner.
(D) Special rule in case of affiliated group 
For purposes of this section, if
(i) a corporation holds stock in another corporation (hereinafter in this subparagraph referred to as the subsidiary), and
(ii) such corporations are members of the same affiliated group which file a consolidated return under section 1501 for the taxable year in which the discharge occurs,

then such stock shall be treated as depreciable property to the extent that such subsidiary consents to a corresponding reduction in the basis of its depreciable property.

(E) Election to treat certain inventory as depreciable property 

(i) In general At the election of the taxpayer, for purposes of this section, the term depreciable property includes any real property which is described in section 1221 (a)(1).
(ii) Election An election under clause (i) shall be made on the taxpayers return for the taxable year in which the discharge occurs or at such other time as may be permitted in regulations prescribed by the Secretary. Such an election, once made, may be revoked only with the consent of the Secretary.
(F) Special rules for qualified real property business indebtedness 
In the case of any amount which under section 108 (c)(1) is to be applied to reduce basis
(i) depreciable property shall only include depreciable real property for purposes of subparagraphs (A) and (C),
(ii) subparagraph (E) shall not apply, and
(iii) in the case of property taken into account under section 108 (c)(2)(B), the reduction with respect to such property shall be made as of the time immediately before disposition if earlier than the time under subsection (a).
(4) Special rules for qualified farm indebtedness 

(A) In general 
Any amount which under subsection (b)(2)(E) of section 108 is to be applied to reduce basis and which is attributable to an amount excluded under subsection (a)(1)(C) of section 108
(i) shall be applied only to reduce the basis of qualified property held by the taxpayer, and
(ii) shall be applied to reduce the basis of qualified property in the following order:
(I) First the basis of qualified property which is depreciable property.
(II) Second the basis of qualified property which is land used or held for use in the trade or business of farming.
(III) Then the basis of other qualified property.
(B) Qualified property 
For purposes of this paragraph, the term qualified property has the meaning given to such term by section 108 (g)(3)(C).
(C) Certain rules made applicable 
Rules similar to the rules of subparagraphs (C), (D), and (E) of paragraph (3) shall apply for purposes of this paragraph and section 108 (g).
(c) Special rules 

(1) Reduction not to be made in exempt property 
In the case of an amount excluded from gross income under section 108 (a)(1)(A), no reduction in basis shall be made under this section in the basis of property which the debtor treats as exempt property under section 522 of title 11 of the United States Code.
(2) Reductions in basis not treated as dispositions 
For purposes of this title, a reduction in basis under this section shall not be treated as a disposition.
(d) Recapture of reductions 

(1) In general 
For purposes of sections 1245 and 1250
(A) any property the basis of which is reduced under this section and which is neither section 1245 property nor section 1250 property shall be treated as section 1245 property, and
(B) any reduction under this section shall be treated as a deduction allowed for depreciation.
(2) Special rule for section 1250 
For purposes of section 1250 (b), the determination of what would have been the depreciation adjustments under the straight line method shall be made as if there had been no reduction under this section.

26 USC 1018 - Repealed. Pub. L. 96589, 6(h)(1), Dec. 24, 1980, 94 Stat. 3410]

Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 301; Oct. 4, 1976, Pub. L. 94–455, title XIX, § 1901(a)(124), 90 Stat. 1784, provided for adjustment of capital structure before Sept. 22, 1938.

26 USC 1019 - Property on which lessee has made improvements

Neither the basis nor the adjusted basis of any portion of real property shall, in the case of the lessor of such property, be increased or diminished on account of income derived by the lessor in respect of such property and excludable from gross income under section 109 (relating to improvements by lessee on lessors property). If an amount representing any part of the value of real property attributable to buildings erected or other improvements made by a lessee in respect of such property was included in gross income of the lessor for any taxable year beginning before January 1, 1942, the basis of each portion of such property shall be properly adjusted for the amount so included in gross income.

26 USC 1020 - Repealed. Pub. L. 94455, title XIX, 1901(a)(125), Oct. 4, 1976, 90 Stat. 1784]

Section, act Aug. 16, 1954, ch. 736, 68A Stat. 302, related to election to have section 1016 (a)(2)(B) of this title apply in respect of periods since Feb. 28, 1913, and before Jan. 1, 1952.

26 USC 1021 - Sale of annuities

In case of the sale of an annuity contract, the adjusted basis shall in no case be less than zero.

26 USC 1022 - Treatment of property acquired from a decedent dying after December 31, 2009

(a) In general 
Except as otherwise provided in this section
(1) property acquired from a decedent dying after December 31, 2009, shall be treated for purposes of this subtitle as transferred by gift, and
(2) the basis of the person acquiring property from such a decedent shall be the lesser of
(A) the adjusted basis of the decedent, or
(B) the fair market value of the property at the date of the decedents death.
(b) Basis increase for certain property 

(1) In general 
In the case of property to which this subsection applies, the basis of such property under subsection (a) shall be increased by its basis increase under this subsection.
(2) Basis increase 
For purposes of this subsection
(A) In general 
The basis increase under this subsection for any property is the portion of the aggregate basis increase which is allocated to the property pursuant to this section.
(B) Aggregate basis increase 
In the case of any estate, the aggregate basis increase under this subsection is $1,300,000.
(C) Limit increased by unused built-in losses and loss carryovers 
The limitation under subparagraph (B) shall be increased by
(i) the sum of the amount of any capital loss carryover under section 1212 (b), and the amount of any net operating loss carryover under section 172, which would (but for the decedents death) be carried from the decedents last taxable year to a later taxable year of the decedent, plus
(ii) the sum of the amount of any losses that would have been allowable under section 165 if the property acquired from the decedent had been sold at fair market value immediately before the decedents death.
(3) Decedent nonresidents who are not citizens of the United States 
In the case of a decedent nonresident not a citizen of the United States
(A) paragraph (2)(B) shall be applied by substituting $60,000 for $1,300,000, and
(B) paragraph (2)(C) shall not apply.
(c) Additional basis increase for property acquired by surviving spouse 

(1) In general 
In the case of property to which this subsection applies and which is qualified spousal property, the basis of such property under subsection (a) (as increased under subsection (b)) shall be increased by its spousal property basis increase.
(2) Spousal property basis increase 
For purposes of this subsection
(A) In general 
The spousal property basis increase for property referred to in paragraph (1) is the portion of the aggregate spousal property basis increase which is allocated to the property pursuant to this section.
(B) Aggregate spousal property basis increase 
In the case of any estate, the aggregate spousal property basis increase is $3,000,000.
(3) Qualified spousal property 
For purposes of this subsection, the term qualified spousal property means
(A) outright transfer property, and
(B) qualified terminable interest property.
(4) Outright transfer property 
For purposes of this subsection
(A) In general 
The term outright transfer property means any interest in property acquired from the decedent by the decedents surviving spouse.
(B) Exception 
Subparagraph (A) shall not apply where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail
(i) 
(I) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or moneys worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse), and
(II) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse, or
(ii) if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust.

For purposes of this subparagraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.

(C) Interest of spouse conditional on survival for limited period 
For purposes of this paragraph, an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if
(i) such death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedents death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event, and
(ii) such termination or failure does not in fact occur.
(5) Qualified terminable interest property 
For purposes of this subsection
(A) In general 
The term qualified terminable interest property means property
(i) which passes from the decedent, and
(ii) in which the surviving spouse has a qualifying income interest for life.
(B) Qualifying income interest for life 
The surviving spouse has a qualifying income interest for life if
(i) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and
(ii) no person has a power to appoint any part of the property to any person other than the surviving spouse.

Clause (ii) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).

(C) Property includes interest therein 
The term property includes an interest in property.
(D) Specific portion treated as separate property 
A specific portion of property shall be treated as separate property. For purposes of the preceding sentence, the term specific portion only includes a portion determined on a fractional or percentage basis.
(d) Definitions and special rules for application of subsections (b) and (c) 

(1) Property to which subsections (b) and (c) apply 

(A) In general 
The basis of property acquired from a decedent may be increased under subsection (b) or (c) only if the property was owned by the decedent at the time of death.
(B) Rules relating to ownership 

(i) Jointly held property In the case of property which was owned by the decedent and another person as joint tenants with right of survivorship or tenants by the entirety
(I) if the only such other person is the surviving spouse, the decedent shall be treated as the owner of only 50 percent of the property,
(II) in any case (to which subclause (I) does not apply) in which the decedent furnished consideration for the acquisition of the property, the decedent shall be treated as the owner to the extent of the portion of the property which is proportionate to such consideration, and
(III) in any case (to which subclause (I) does not apply) in which the property has been acquired by gift, bequest, devise, or inheritance by the decedent and any other person as joint tenants with right of survivorship and their interests are not otherwise specified or fixed by law, the decedent shall be treated as the owner to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants with right of survivorship.
(ii) Revocable trusts The decedent shall be treated as owning property transferred by the decedent during life to a qualified revocable trust (as defined in section 645 (b)(1)).
(iii) Powers of appointment The decedent shall not be treated as owning any property by reason of holding a power of appointment with respect to such property.
(iv) Community property Property which represents the surviving spouses one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State or possession of the United States or any foreign country shall be treated for purposes of this section as owned by, and acquired from, the decedent if at least one-half of the whole of the community interest in such property is treated as owned by, and acquired from, the decedent without regard to this clause.
(C) Property acquired by decedent by gift within 3 years of death 

(i) In general Subsections (b) and (c) shall not apply to property acquired by the decedent by gift or by inter vivos transfer for less than adequate and full consideration in money or moneys worth during the 3-year period ending on the date of the decedents death.
(ii) Exception for certain gifts from spouse Clause (i) shall not apply to property acquired by the decedent from the decedents spouse unless, during such 3-year period, such spouse acquired the property in whole or in part by gift or by inter vivos transfer for less than adequate and full consideration in money or moneys worth.
(D) Stock of certain entities 
Subsections (b) and (c) shall not apply to
(i) stock or securities of a foreign personal holding company,
(ii) stock of a DISC or former DISC,
(iii) stock of a foreign investment company, or
(iv) stock of a passive foreign investment company unless such company is a qualified electing fund (as defined in section 1295) with respect to the decedent.
(2) Fair market value limitation 
The adjustments under subsections (b) and (c) shall not increase the basis of any interest in property acquired from the decedent above its fair market value in the hands of the decedent as of the date of the decedents death.
(3) Allocation rules 

(A) In general 
The executor shall allocate the adjustments under subsections (b) and (c) on the return required by section 6018.
(B) Changes in allocation 
Any allocation made pursuant to subparagraph (A) may be changed only as provided by the Secretary.
(4) Inflation adjustment of basis adjustment amounts 

(A) In general 
In the case of decedents dying in a calendar year after 2010, the $1,300,000, $60,000, and $3,000,000 dollar amounts in subsections (b) and (c)(2)(B) shall each be increased by an amount equal to the product of
(i) such dollar amount, and
(ii) the cost-of-living adjustment determined under section 1 (f)(3) for such calendar year, determined by substituting 2009 for 1992 in subparagraph (B) thereof.
(B) Rounding 
If any increase determined under subparagraph (A) is not a multiple of
(i) $100,000 in the case of the $1,300,000 amount,
(ii) $5,000 in the case of the $60,000 amount, and
(iii) $250,000 in the case of the $3,000,000 amount,

such increase shall be rounded to the next lowest multiple thereof.

(e) Property acquired from the decedent 
For purposes of this section, the following property shall be considered to have been acquired from the decedent:
(1) Property acquired by bequest, devise, or inheritance, or by the decedents estate from the decedent.
(2) Property transferred by the decedent during his lifetime
(A) to a qualified revocable trust (as defined in section 645 (b)(1)), or
(B) to any other trust with respect to which the decedent reserved the right to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust.
(3) Any other property passing from the decedent by reason of death to the extent that such property passed without consideration.
(f) Coordination with section 691 
This section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691.
(g) Certain liabilities disregarded 

(1) In general 
In determining whether gain is recognized on the acquisition of property
(A) from a decedent by a decedents estate or any beneficiary other than a tax-exempt beneficiary, and
(B) from the decedents estate by any beneficiary other than a tax-exempt beneficiary,

and in determining the adjusted basis of such property, liabilities in excess of basis shall be disregarded.

(2) Tax-exempt beneficiary 
For purposes of paragraph (1), the term tax-exempt beneficiary means
(A) the United States, any State or political subdivision thereof, any possession of the United States, any Indian tribal government (within the meaning of section 7871), or any agency or instrumentality of any of the foregoing,
(B) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by chapter 1,
(C) any foreign person or entity (within the meaning of section 168 (h)(2)), and
(D) to the extent provided in regulations, any person to whom property is transferred for the principal purpose of tax avoidance.
(h) Regulations 
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.

26 USC 1023 - Cross references

(1) For certain distributions by a corporation which are applied in reduction of basis of stock, see section 301 (c)(2).
(2) For basis in case of construction of new vessels, see chapter 533 of title 46, United States Code.

26 USC 1024 - Renumbered 1023]