2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1005 - Computation of Taxable Income (§§ 30101 — 30157) › Subchapter D - Determination of Capital Gains and Losses (§§ 30141 — 30149) › § 30142 - Basis to determine gain or loss

(a) Unadjusted basis of property.— The basis of property shall be the cost of such property, except that:
(1) Inventory value.— If the property should have been included in the last inventory, the basis shall be the last inventory value thereof.
(2) Gifts after December 31, 1923.—
(A) Property acquired by gift after December 31, 1923, and before January 1, 1983.— If the property was acquired by gift after December 31, 1923, and before January 1, 1983, the basis shall be the same as it would be if said property were 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 prior to the date of the gift as provided in subsection (b), 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 donor, the Secretary shall, if possible, obtain such facts from such donor or last preceding owner, or from 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 on 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) Property acquired by gift after December 31, 1982.— If the property was acquired by gift after December 31, 1982, but before July 1, 1985, the basis shall be the fair market value of said property at the time of said gift, except as provided in paragraph (C).
(C) Property acquired by gift after June 30, 1985 and before January 1, 2011.— If the property was acquired by gift after June 30, 1985, and before January 1, 2011, and the same qualifies for the deduction provided in Subtitle C of the Puerto Rico Internal Revenue Code of 1994, as amended, or qualified for those purposes under Act No. 167 of June 30, 1968, known as the “Estate and Gift Tax Act of Puerto Rico”, as amended, with regard to properties located in Puerto Rico, the basis shall be determined in the same manner as provided in paragraph (A).
(D) Property acquired by gift after December 31, 2010.— If the property was acquired by gift after December 31, 2010, the basis shall be the fair market value of said property on the date of said gift, except in the case of gifts that qualify for the deduction provided in § 31092 of this title, in which case the basis of the property shall be the same basis such property had in the hands of the owner, increased by the portion of the amount of the exclusions provided in § 31083 of this title and, if applicable, § 31103 of this title, that proportionately corresponds, pursuant to the information provided in the tax return filed in accordance with § 31122 of this title, but such basis shall not exceed the fair market value at the time of the gift.
(3) Transfer in trust after December 31, 1923.— If the property was acquired after December 31, 1923, 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 by the grantor upon such transfer under the law applicable to the year in which the transfer was made.
(4) Gift or transfer in trust before January 1, 1924.— If the property was acquired by gift or transfer in trust on or before December 31, 1923, the basis shall be the fair market value of such property at the time of such acquisition.
(5) Basis of property acquired from a decedent.—
(A) If the property was acquired by bequest, devise or inheritance of the decedent, or by the decedent’s estate prior to July 1, 1985.— The basis of property acquired by bequest or inheritance prior to July 1, 1985 shall be the fair market value of such property at the time of such acquisition, except that:
(i) In the case of corporate stock and securities not traded in recognized stock markets and received from the decedent, the basis shall be the value used in the decedent’s estate tax return.
(ii) In the case of property transferred in trust to pay the income for life to, or upon the order or under direction of the decedent, with the right reserved to the decedent at all times prior to his/her death to revoke the trust, the basis of such property in the hands of the persons entitled to it under the terms of the trust instrument after the decedent’s death shall, after such death, be the same as if the trust instrument had been a will executed on the day of the decedent’s death. For purposes of this clause, property transferred without full and adequate consideration under a general power of appointment exercised by will, shall be deemed to be property transferred from the individual exercising such power by bequest or devise.
(B) Property acquired by bequest, devise or inheritance, or by the decedent’s estate from the decedent after July 1, 1985 and before January 1, 2011.— If the property was acquired from the decedent by bequest, devise or inheritance or the decedent’s estate from the decedent after July 1, 1985, but before January 1, 2011, the basis shall be determined as follows:
(i) In the case of property that qualifies for the deduction with regard to property located in Puerto Rico, or the fixed exemption provided in Subtitle C of the Puerto Rico Internal Revenue Code of 1994, as amended, or Act No. 167 of June 30, 1968, as amended, the basis shall be the same as it would be if said property were in the hands of the decedent or of the last preceding owner who did not acquire it by bequest, devise or inheritance. Notwithstanding, for the purpose of computing gains in any sale or exchange of this type of property, a maximum increment of the basis of four hundred thousand dollars ($400,000) shall be allowed, which shall be available until it is exhausted.
(ii) In the case of any other property other than that described in subparagraph (i) above, the basis shall be determined according to paragraph (A) of this clause.
(iii) In the case of a property which is the principal residence of the decedent, and the lot where the structure is located up to a maximum of one (1) cuerda, the basis shall be the fair market value of said property on the date of said acquisition.
(C) Property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent after December 31, 2010.— If the property was acquired from the decedent by bequest, devise, or inheritance, or by the decedent’s estate from the decedent after December 31, 2010, the basis shall be determined as follows:
(i) If the bequest, devise or inheritance was subject to the corresponding taxation on account of the estate, then the basis of the property so acquired shall be the fair market value on the date of the decedent’s death as it was stated in the estate’s tax return for the purpose of obtaining the lien release certification.
(ii) In the case of an estate that qualifies for the deduction provided in § 31032 of this title, or the credit provided in § 31044 of this title, the basis of the property shall be the same it had in the hands of the decedent, adjusted by such portion of the total of the fixed exemption provided in § 31038 of this title that proportionately corresponds, as stated in the tax return filed pursuant to§ 31121 of this title B, but said basis shall not exceed its fair market value at the date of the decedent’s death.
(6) Tax-exempt exchanges.— If the property was acquired after February 28, 1913, on an exchange described in subsections (b)—(e) of § 30144 of this title, inclusive, or § 30144(l) of this title, the basis (except as provided in clause (15) of this subsection) shall be the same as in the case of the property exchanged, decreased in the amount of any money received by the taxpayer and increased in the amount of gain or decreased in the amount of loss to the taxpayer that was recognized on such exchange under the law applicable to the year in which the exchange was made. If a property so acquired consisted in part of the type of property permitted by § 30144(b) or § 30144(l) of this title to be received without the recognition of gain or loss, and in part of other property, the basis provided in this clause shall be allocated between the properties (other than money) received, and for the purpose of the allocation, an amount equivalent to its fair market value at the date of the exchange shall be assigned to such other property. Where as part of the consideration paid to the taxpayer, another party to the exchange assumed a liability of the taxpayer or acquired from the taxpayer property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of this clause, be considered as money received by the taxpayer on the exchange. This clause shall not apply to property acquired by a corporation by the issuance of its stock or securities as the consideration in whole or in part for the transfer of the property to it.
(7) Transfers to corporations.— If the property was acquired:
(A) after December 31, 1923, and in a taxable year beginning before January 1, 1954, by a corporation in connection with a reorganization, and immediately after the transfer, an interest in or control over such property of fifty percent (50%) or more remained in the hands of the same persons or any of them, or
(B) in a taxable year beginning after December 31, 1953, by a corporation in connection with a reorganization, then the basis shall be the same as it would be if said property were in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor on such transfer under the law applicable to the year in which the transfer was made. This paragraph shall not apply if the property acquired consists of stock or securities in a corporation that is a party to the reorganization, unless such stock or securities were acquired by the exchange of stock or securities of the transferee (or of a corporation which is in control, determined under § 30144(h) of this title, of the transferee) as the consideration in whole or in part for the transfer.
(8) Property acquired by issuance of stock or as paid-in surplus.— If the property was acquired after December 31, 1923, by a corporation:
(A) By the issuance of its stock or securities in connection with a transaction described in § 30144(b)(5) of this title (including, also, cases where part of the consideration for the transfer of such property to the corporation was property or money, in addition to such stock or securities), or
(B) as paid-in surplus or as a contribution to capital, then the basis shall be the same as it would be if such property were in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor on such transfer under the law applicable to the year in which the transfer was made.
(9) Involuntary conversion.— If the property was acquired after February 28, 1913, as the result of a compulsory or involuntary conversion described in § 30144(f)(1) of this title, the basis shall be the same as in the case of the property so converted decreased in the amount of any money received by the taxpayer which was not expended in accordance with the provisions of law applicable to the year in which such conversion was made determining the taxable status of the gain or loss upon such conversion, and increased in the amount of gain or decreased in the amount of loss to the taxpayer recognized upon such conversion under the law applicable to the year in which such conversion was made. In the case of property purchased by the taxpayer which resulted, under the provisions of § 30144(f)(2) of this title, in the nonrecognition of any part of the gain realized as the result of a compulsory or involuntary conversion, the basis shall be the cost of such property decreased in the amount of the gain not so recognized; and if the property purchased consists of more than one piece of property, the basis determined under this sentence shall be allocated to the purchased properties in proportion to their respective costs. This clause shall not apply with respect to property acquired as a result of a compulsory or involuntary property used by the taxpayer as his/her main residence.
(10) Wash sales of stock.— If the property consists of stock or securities the acquisition of which, or the contract or option to acquire which, resulted in the nondeductibility (under § 30147 of this title or corresponding provisions of prior income tax laws, relating to wash sales) of the loss from the sale or other disposition of substantially identical stock or securities, then the basis shall be the basis of the stock or securities so sold or otherwise disposed of, increased or decreased, as the case may be, by the difference, if any, between the price at which the property was acquired and the price at which such substantially identical stock or securities were sold or otherwise disposed of.
(11) Basis established by the income Tax Act of 1924.— If the property was acquired after February 28, 1913, in any taxable year beginning prior to January 1, 1954, and the basis thereof, for purposes of the Income Tax Act of 1924, was prescribed by Section 7(a)(6), (7), or (8) of said law, then, for purposes of this subtitle, the basis shall be the same as the basis therein prescribed in the Income Tax Act of 1924.
(12) Property acquired before March 1, 1913.— In the case of property acquired before March 1, 1913, if the basis otherwise determined under this subsection, adjusted for the period prior to March 1, 1913, as provided in subsection (b), is less than the fair market value of the property as of March 1, 1913, then the basis for determining gain shall be such fair market value. In determining the fair market value of stock in a corporation as of March 1, 1913, due regard shall be given to the fair market value of the assets of the corporation as of that date.
(13) Basis of property received in liquidations.—
(A) General rule.— If property is received in a distribution in a total or partial liquidation of a corporation, and if gain or loss is recognized on receipt of said property, then the basis of the property in the hands of the distributee shall be the fair market value of such property at the time of the distribution.
(B) Liquidation of subsidiary.— If property was received by a corporation on a distribution in total liquidation of another corporation (within the meaning of § 30144(b)(6) of this title), then the basis of the property in the hands of such distributee shall be the same as if said property were in the hands of the transferor.
(14) Property acquired by corporate stock distribution.—
(A) If the property was acquired by a shareholder in a corporation and consists of stock in such corporation, or rights to acquire such stock, acquired by him/her after February 28, 1913, in a distribution by such corporation (hereinafter referred to in this subparagraph as “new stock’), or consists of stock in respect to which such distribution was made (hereinafter referred to in this paragraph as “old stock”), and
(i) the new stock was acquired in a taxable year beginning before January 1, 1954, or
(ii) the new stock was acquired in a taxable year beginning after December 31, 1953, and its distribution did not constitute income to the shareholders within the meaning of the Sixteenth Amendment to the Constitution of the United States, then the basis of the new stock and of the old stock, respectively, in the shareholder’s hands, shall be determined by allocating among the old stock and the new stock the adjusted basis of the old stock, such allocation to be made under regulations which shall be prescribed by the Secretary.
(B) Paragraph (A) shall not apply if the new stock was acquired in a taxable year beginning before January 1, 1954, and an amount on account of such stock was included, as a dividend, in gross income for such year, and after such inclusion, such amount was not excluded from gross income for such year.
(15) Property acquired on the reorganization of certain corporations.— If the property was acquired by a corporation upon a transfer to which § 30144(b)(8) of this title, or that part of § 30144(d) or (e) of this title as relates to § 30144(b)(8) of this title, is applicable, then the basis in the hands of the acquiring corporation shall be the same as it would be as if said property were in the hands of the corporation whose property was so acquired, increased in the amount of gain recognized to the corporation whose property was so acquired under the law applicable to the year in which the acquisition occurred.
(16) Basis of qualified replacement property acquired by purchase as defined in § 30144(r) of this title.— The basis of a qualified replacement property (as defined § 30144(r)(3)(D) of this title) purchased by the taxpayer during the replacement period shall be reduced by the amount of gain not recognized by reason of such purchase and the application of § 30144(r)(1) of this title. If more than one item of qualified replacement property is purchased, the basis of each of such items shall be reduced by an amount determined by multiplying the total gain not recognized by reason of such purchase and the application of § 30144(r)(1) of this title by a fraction whose numerator is the cost of such item of property, and whose denominator is the total cost of all such items of property.
(b) Adjusted basis.— 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 subsection (a), adjusted as provided hereinbelow.
(1) General rule.— Proper adjustment in respect of the property shall in all cases be made
(A) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made for taxes or other carrying charges described for which deductions have been taken by the taxpayer in determining net income for the taxable year or prior taxable years;
(B) with respect to any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount allowed, but not less than the amount allowable under this Subtitle or prior income tax laws. The adjustment herein prescribed shall be only in respect to the current depreciation provided in § 30117 of this title and shall be made irrespectively of any option for or deduction of flexible depreciation under § 30181 of this title or accelerated depreciation under § 30182 of this title, or the use of any method of accelerated depreciation or exception to the imputation of capital accounts allowed by special tax incentives laws;
(C) in respect of any period before March 1, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent sustained;
(D) in the case of stock (to the extent not provided 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;
(E) in the case of any bond, as defined in § 30148 of this title, the interest on which is wholly exempt from the tax imposed by this part, to the extent of the amortizable bond premium disallowable as a deduction pursuant to § 30148(a)(2) of this title, and in the case of any other bond as defined in said section, to the extent of the deductions allowable pursuant to § 30148(a)(1) of this title with respect thereto;
(F) in the case of a residence or sole proprietorship, the acquisition of which resulted, under § 30144(m) or § 30144(n) of this title, in the nonrecognition of any part of the gain realized on the sale, exchange, or involuntary conversion of another residence, or sole proprietorship, to the extent provided in § 30144(m)(4) of this title;
(G) in the case of a residence for which an acquisition credit was granted pursuant to §§ 30213 and 30214 of this title, for an amount equivalent to the credit so granted;
(H) in the case of transfers by gift or due to death, the interest of the property used in an activity other than the main trade or business of the transferor or decedent, respectively, for the amount in excess of the expenses disallowable as a deduction, pursuant to § 30122(b)(3) of this title.
(2) Substituted basis.— The term “substituted basis”, as used in this subsection, means a basis determined under any provision of subsection (a) or under any corresponding provision of a prior income tax law, provided that the basis shall be determined:
(A) By reference to the basis in the hands of a transferor, donor, or grantor, or
(B) by reference to other property held at any time by the person for whom the basis is to be determined.
Whenever it appears that the basis of the property in the hands of the taxpayer is a substituted basis, then the adjustments provided in clause (1) of this subsection 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) 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 § 30102(a)(7) of this title. 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, 1954, the basis of each portion of such property shall be properly adjusted for the amount so included in gross income.
History —Jan. 31, 2011, No. 1, § 1034.02, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 40.