Question

How does depreciation impact basis?

Depreciation decreases basis.

Depreciation increases basis.

Basis is not impacted by depreciation.

None of the above.

Answer 1

Solutions :

Taxation

Basis is the amount that is paid to acquire an asset. It is generally the cost price of the asset.

Tax depreciation is the depreciation that is an expense on any tax return for a given reporting period under the applicable tax laws. It is used to reduce the amount of taxable income reported by a business. It is the gradual charging of depreciation over the useful life of the asset.

Depreciation deductions are generally claimned on the assets. Hence, whenver deprecation is claimed on the tax return , it reduces the tax basis of the asset

So we can conclude that depreciation decreases basis.