A taxpayer's basis in property is the amount they have invested in it. Use the basis of property to figure depreciation, amortization, depletion, and casualty losses. Also use it to figure the gain or loss on the sale or other disposition of property.
Basis is the cost of property plus certain other costs related to buying or producing the property. The basis of property is increased by improvements that have a useful life of more than a year, and some costs related to the property can be either deducted in the year incurred or capitalized and depreciated along with the property.
Similarly, there are a number of deductions that reduce an asset's basis, e.g., depreciation, the section 179 deduction, and casualty and theft losses.
The taxpayer must keep accurate records of all items that affect the basis of property so that you can prepare an accurate tax return. Most of the time, the basis of an asset is its cost to the taxpayer, paid by cash, debt, or other property or services. Sometimes, however, the taxpayer's basis isn't determined by the cost to the taxpayer, such as for property received in a like-kind exchange, as a gift, or by inheritance.
For any questions related to determining the basis of an asset, refer to IRS Publication 551, Basis of Assets.
Additional Information:
IRS: Publication 551, Basis of Assets
IRS: What is the basis of property received as a gift?
IRS: Publication 561, Determining the Value of Donated Property