In accounting, the basis definition is the value of an asset for tax purposes. The basis of an asset is the cost of the asset reported to the Internal Revenue Service (IRS). It includes the original purchase price of the asset plus any acquisition expenses. The basis may increase by the value of any subsequent capital improvement in the asset. Or itt may decrease due to depreciation. Also, refer to basis as cost basis or tax basis.
The basis is also the amount used to calculate gains or losses if and when the asset is sold or scrapped.
For example, if shares of common stock are purchased for $1,000 and sold three years later for $1,500, then the basis is still $1,000. As a result, the taxpayer would record a capital gain of $500.
Likewise, if you purchase equipment for $1,000 with installation and shipping fees of $500, then the basis for that asset would be $1,500. If the equipment is depreciated down to $500 and then sell it for $300, then the taxpayer would record a loss of $200.