Question

Which of the following is TRUE about the basis of property?

Basis is:
Directly adjusted for inflation.
Fixed and never changes after purchase.
Simply the purchase price of the property, without considering other factors.
The value used to determine gain or loss when the property is sold.

Answer 1

"The value used to determine gain or loss when the property is sold."

Explanation: Basis (more precisely, adjusted basis) is the starting value (often the purchase price) adjusted for items like capital improvements, depreciation, casualty losses, etc., and is used to compute gain or loss (amount realized minus adjusted basis). It is not directly adjusted for inflation and it can change after purchase.