The Waterbury Democrat., 1944-02-21
YOUR FEDERAL INCOME TAX
No. fl BASIS OF GAIN OR LOSS (PART El

In order to determine the gain or loss from the sale or exchange of property, it is necessary first to ascertain the basis of the property in the hands of the taxpayer. This basis, for Federal normal tax, sur- tax, and victory tax purposes, will depend on how the property was acc quired, as by purchase. in payment for services rendered, by gift or transfer in trust, by bequest, devise, or inheritance, by exchange, by in- voluntary conversion, etc. It may also be affected by the time of acquisition, as well as by the amount of depreciation that has occurred and the amount of any improve mentS or betterments that have been added
 In determining the basis of prop erty for income tax purposes, two terms are employed, the ''basis'' and the adjusted basis" The basis may differ in accordance with the manner in which the property was acquired, as stated above, and frequently by reason of the date of acquisition. In the case of property acquired by purchase on or after March l, 1913, for instance, the basis is the pur- chase price. In the case of real estate, the basis is adjusted by the amount of any expenditure, receipt, or other item chargeable to capital account during the time the property has been held. The basis, so adjust ed, becomes the adjusted basis" !" The difference between the adjusted basis and the selling price Cor value received in exchange) becomes the measure of gain or loss.
 In arriving at the adjusted basis" for real estate the amount of de- preciation to be deducted is the amount that is allowed or allowable. whichever is greater, in each year during which the property has been held. In some years the taxpayer may have taken more or less depre- citation than is allowable, and if he has taken more depreciation than is allowable, then the amount taker is the amount to be deducted in determining the basis. If he has taken less than the amount allow able, then the allowable amount is the amount that would be deducted. The depreciation so chargeable is reduced by the amount of additions and betterments charged against the depreciation reserve.
 Tn the case of a residence owned and occupied by the taxpayer, no depreciation is allowable during such occupancy, since depreciation is con- sidered in such case to be a per- sonal expense of the taxpayer. The amount of additions and betterments made during the taxpayers occup- ancy of the property as his resi-. dence may, however. be used to in- crease the value, or basis, at which the property is held in determining the amount of gain or loss.
 In the case of property acquired before March 1, 1913, different rule for determining the basis applies, depending upon whether gain or loss is involved. The basis for de- termining gain is the cost or other basis adjusted to March l, 1913, for depreciation sustained. or the fair market value as of March 1, 1913. whichever is greater. This basis Is then adjusted as described above to arrive at the adjusted basis" The basis to be used for the purpose of determining a loss is the cost, or other basis, adjusted as described above.
 The net gain from the sale or ex- change of capital assets need not be reported for victory tax purposes, since 1t is subject only to normal tax and s1rtax, whereas the net gain from the sale or exchange of prop erty other than capital assets is sub- ject to all three taxes.