basis

noun ba·sis \ ˈbā-səs \
Updated on: 11 Dec 2017

Definition of basis

plural bases play \-ˌsēz\
1 : the bottom of something considered as its foundation
2 : the principal component of something
  • Fruit juice constitutes the basis of jelly.
3 a : something on which something else is established or based
  • stories with little basis in reality
  • no legal basis for a new trial
  • still some basis for hope
  • selected on the basis of test scores
b : an underlying condition or state of affairs
  • hired on a trial basis
  • He is on a first-name basis with his customers.
c : a fixed pattern or system
  • meets with us on a regular basis [=regularly]
  • The department sends reports on a daily basis. [=every day]
4 : the basic principle
  • concepts that form the basis of the country's economic policies
5 mathematics : a set of linearly independent vectors (see 1vector 1a) in a vector space such that any vector in the vector space can be expressed as a linear combination of them with appropriately chosen coefficients (see coefficient 1)

Examples of basis in a Sentence

  1. The company does not hire employees on the basis of their race, sex, age, or religion.

  2. the sole basis for the rumor is someone's overactive imagination

Recent Examples of basis from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'basis.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of basis

Latin — more at base


Financial Definition of BASIS

adjusted basis

What It Is

Adjusted basis refers to the increase or decrease in an asset's value due to depreciation or capital enhancements.

How It Works

From the time an asset is acquired until the time it is sold, an asset experiences a number of events which affect its value. These events can cause an increase or decrease in the asset's total value. An asset's adjusted basis takes the base price of an asset and adjusts it for changes in value reflecting enhancements and or depreciation. For instance, a given asset purchased for $100 that is sold one year later after having experienced $10 in depreciation and $50 in improvements would have an adjusted basis of $100 - $10 + $50 = $140.

Why It Matters

In the event an asset is sold, the adjusted basis is needed for tax purposes as it is used to calculate the capital gain or loss.


basis

What It Is

Basis refers to the original price of an asset. It is sometimes called cost basis or tax basis.

How It Works

Let's assume you purchase 100 shares of Company XYZ stock for $5 per share and you pay a $10 commission for the purchase. Your basis would be:

(100 x $5) + $10 = $510

Income realized from the asset, including dividends and capital distributions (even if they are reinvested rather than received in cash) increase the basis. Thus, in the above example, if your stock paid a $1-per-share dividend every year for three years, your basis would increase to:

$510 + (100 x $1 x 3) = $810

Money spent on improvements to an asset (such as certain home improvements) are added to the asset's basis, and depreciation on the asset is subtracted from the cost basis.

Why It Matters

An asset's basis becomes very important when the owner sells the asset. The difference between the sale price and the basis is called a capital gain (if the sale price is higher than the cost basis) or a capital loss (if the sale price is lower than the basis). Capital gains are generally only taxable when the investor actually sells the asset. Realized losses can often offset these gains and thus lower the investor's potential capital-gains taxes. The length of time the asset is held, among other things, determines the tax effect of the gain or loss. Changes in tax rates also may influence an investor's concern about basis.

An asset's basis is usually based on its original purchase price, but sometimes people inherit assets rather than purchase them. In these cases, the basis of the asset becomes the value of the asset at the time the investor inherits it (this is called a step-up in basis).

Often, investors accumulate shares of the same stock at different prices over time. Because of this, when the investor sells some of the shares, he or she must identify which shares from the "inventory" were sold in order to calculate capital gains or losses. In general, investors want to minimize taxable gains by selling the shares with the highest basis first. However, if the investor cannot identify which shares are which, the IRS requires use of the first-in-first-out (FIFO) method, meaning that the investor must assume he or she first sells the shares that are held the longest. These older shares may not have the highest basis of the investor's inventory of shares, and thus the method could inflate the investor's tax bill.


cost basis

What It Is

Cost basis refers to the original price of an asset. Cost basis is sometimes called tax basis.

How It Works

Let's assume you purchase 100 shares of XYZ Company stock for $5 per share, and you pay a $10 commission for the purchase. Your cost basis would be:

(100 x $5) + $10 = $510

Income realized from the asset, including dividends and capital distributions (even if they are reinvested rather than received in cash) increase the cost basis. Thus in the above example, if your stock paid a $1-per-share dividend every year for three years, your basis would increase to:

$510 + (100 x $1 x 3) = $810

Money spent on improvements to an asset (such as certain home improvements) are added to the asset's cost basis, and depreciation on the asset is subtracted from the cost basis.

Why It Matters

An asset's cost basis becomes very important when the owner sells the asset. The difference between the sale price and the cost basis is called a capital gain (if the sale price is higher than the cost basis) or a capital loss (if the sale price is lower than the cost basis). Capital gains are generally only taxable when the investor actually sells the asset. Realized losses can often offset these gains and thus lower the investor's potential capital-gains taxes. The length of time the asset is held, among other things, determines the tax effect of the gain or loss. Changes in tax rates may also influence an investor's concern about cost basis.

An asset's cost basis is usually based on its original purchase price, but sometimes people inherit assets rather than purchase them. In these cases, the cost basis of the asset becomes the value of the asset at the time the investor inherits it (this is called a step-up in the basis).

Often, investors accumulate shares of the same stock at different prices over time. Because of this, when the investor sells some of the shares, he or she must identify which shares from the inventory were sold in order to calculate capital gains or losses. In general, investors want to minimize taxable gains by selling the shares with the highest cost basis first. However, if the investor cannot identify which shares are which, the IRS requires use of the first-in-first-out (FIFO) method, meaning that the investor must assume he or she first sells the shares that are held the longest. These older shares may not have the highest cost basis of the investor's inventory of shares, and thus the method could inflate the investor's tax bill.


BASIS Defined for English Language Learners

basis

noun

Definition of basis for English Language Learners

  • : something (such as an idea or set of ideas) from which another thing develops or can develop

  • : a reason for doing something

  • : a fixed pattern or system for doing something


BASIS Defined for Kids

basis

noun ba·sis \ ˈbā-səs \

Definition of basis for Students

plural bases \-ˌsēz\
: something on which another thing is based or established : foundation
  • The story has its basis in fact.

Medical Dictionary

basis

noun ba·sis \ ˈbā-səs \

medical Definition of basis

plural bases play \-ˌsēz\
1 : any of various anatomical parts that function as a foundation
2 : base 2b

Law Dictionary

basis

noun ba·sis \ ˈbā-səs \

legal Definition of basis

plural bases play \-ˌsēz\
1 : something (as a principle or reason) on which something else is established
  • the court could not imagine any conceivable basis for the statute
— see also rational basis
2 : a basic principle or method; especially : the principle or method by which taxable income is calculated
Note: The Internal Revenue Code has set some limits on which method a taxpayer may use for figuring taxable income. For example, a corporation with gross receipts under $5,000,000 may be a cash-basis taxpayer.
accrual basis
: a method of accounting in which income and expenses are recorded in the period when they are earned or incurred regardless of when the payment is received or made called also accrual method
cash basis
: a method of accounting in which income and expenses are recorded in the period when payment is received or made called also cash method
3 : the value (as cost or fair market value) of an asset used in calculating capital gains or losses for income tax purposes
adjusted basis
: the basis of an asset increased or decreased to reflect changes in value (as through improvement or depreciation)
carryover basis \ˈkar-ē-ˌō-vər-\
: the basis of a donated or transferred asset that is equal to the basis of the asset when it was in the hands of the donor or transferor
Note: Carryover basis is generally applied to gifts and to transfers in trust.
cost basis
: the basis of an asset equal to the amount paid for the asset plus other acquisition costs
stepped-up basis \ˈstept-ˈəp-\
: the basis of inherited property equal to its market value at the decedent's date of death or to an alternate valuation
substituted basis
: the basis of property received in exchange for property of a like kind that is equal to the basis of the property given with adjustments for additional consideration received or gains and losses realized


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