26 U.S.C. § 1016 : US Code - Section 1016: Adjustments to basis

Search 26 U.S.C. § 1016 : US Code - Section 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 taxpayer's 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
taxpayer's 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, Sec. 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
shareholder's consent made under section 28 of such code;
[(13) Repealed. Pub. L. 108-357, title IV, Sec. 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) in the case of a facility with respect to which a credit
was allowed under section 45H, to the extent provided in section
45H(d),(!2)
(32) to the extent provided in section 179D(e),(!2)
(33) 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)
(34) to the extent provided in section 25C(e), in the case of
amounts with respect to which a credit has been allowed under
section 25C,(!2)
(35) 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)
(36) to the extent provided in section 30B(h)(4),(!2) and
(37) to the extent provided in section 30C(f).
(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
decedent's death (or the alternate valuation date under section
2032, if the executor of the decedent's 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.