What basis means
Basis is your tax investment
Basis generally measures the taxpayer's investment in property or an entity interest for tax purposes. It affects gain, loss, depreciation, and deduction limits.
Basis changes over time
Purchases, contributions, income allocations, losses, distributions, depreciation, debt changes, and gifts can all affect basis depending on the context.
High-yield REG basis areas
Property basis
Know the starting basis for purchased, gifted, inherited, exchanged, and converted property. The initial basis rule often drives the rest of the question.
Partnership outside basis
Partnership basis often changes with contributions, income, losses, distributions, and liabilities. Liability increases generally increase outside basis; distributions generally reduce it.
S corporation basis
S corporation shareholders track stock basis and sometimes debt basis. Loss deductions can be limited when basis is too low.
Loss limitations
Basis is only one limitation. At-risk and passive activity rules may limit losses even when basis exists.
How to answer basis questions
Start with the event
Ask whether the fact pattern is a purchase, gift, inheritance, contribution, distribution, sale, exchange, or loss allocation. The event tells you the rule set.
Track increases and decreases
Write the basis roll-forward: beginning basis, plus increases, minus decreases, then test gain, loss, or deduction limits.
Separate entity and owner consequences
Partnerships, S corporations, and C corporations can have different entity-level and owner-level effects. Do not collapse them into one answer.
Frequently asked questions
Why is basis important for REG?
Basis affects taxable gain, deductible loss, depreciation, distributions, and loss limitations. Many REG questions depend on basis tracking.
What is partnership outside basis?
Outside basis is the partner's basis in the partnership interest. It changes with contributions, income, losses, distributions, and certain liability changes.
Is S corporation basis the same as partnership basis?
No. Some concepts overlap, but S corporation stock and debt basis rules differ from partnership outside basis rules.
What is the best way to study tax basis?
Practice roll-forward questions. Write beginning basis, increases, decreases, and the final tax consequence until the pattern is automatic.
Sources and editorial notes
World of Accountants uses public sources, official exam references, and career data where available. Figures vary by year, location, employer, and individual candidate background.
Basis gets easier when you track the movement.
Practice REG MCQs and Lite TBS with explanations so basis adjustments become a repeatable habit.