The basis of a capital asset is usually equal to the cost of the asset. Two exceptions to this general rule have to do with how the asset was acquired:

• Inheritance:—the basis will be equal to the estate tax value in the decedent’s estate. This amount is usually calculated on the value of the property on the date of death.
• Gift:—the basis is the same as it would have been for the person who gave you the gift (the donor) or its fair market value, whichever is lower. If the recipient had to pay a gift tax on the gift, the amount of that tax gets added to the basis of the gift. This is true even though the tax is imposed on, and usually paid by, the donor.

In the end, gain or loss is measured against adjusted basis, and many things may adjust the basis of a capital asset. Depreciation and rules relating to capitalizing property are some of the more common factors that adjust the basis of property.