IRS Publication 551 — Basis of Assets

Casualty or theft loss deductions and insurance reimbursements

Certain vehicle credits Assessments for local improvements: Water connections Sidewalks Roads Section 179 deduction Casualty losses: Restoring damaged property Depreciation

Nontaxable corporate distributions Legal fees: Cost of defending and perfecting a title Zoning costs Publication 551 (12-2025) 7

• Deductions previously allowed (or allowable) for amortization, depreciation, and depletion.

• Exclusion of subsidies for energy conservation measures.

• Certain vehicle credits.

• Residential energy credits.

• Postponed gain from sale of home.

• Investment credit taken.

• Casualty and theft losses and insurance reimbursement.

• Certain canceled debt excluded from income.

• Rebates treated as adjustments to the sales price.

• Easements.

• Gas-guzzler tax.

• Adoption tax benefits.

• Credit for employer-provided child care.

• Partial disposition of MACRS property, whether you elect to recognize the partial disposition or are required to recognize it. Some of these items are discussed next.

Casualties and Thefts If you have a casualty or theft loss, decrease the basis in your property by any insurance or other reimbursement and by any deductible loss not covered by insurance. If you dispose of a portion of MACRS property because of a loss sustained from a casualty event, decrease the basis in the property by any insurance or other reimbursement and by any deductible loss on the disposed portion of the property that isn't covered by insurance. The deductible loss is generally the decrease in the FMV of the property resulting from the casualty event, but is limited to the adjusted basis of the disposed portion of the MACRS property.

You must increase your basis in the property by the amount you spend on repairs that substantially prolong the life of the property, increase its value, or adapt it to a different use. T o make this determination, compare the repaired property to the property before the casualty. If the amount you spent didn't otherwise improve the property, then it's deductible as a repair and doesn't affect basis. For more information on casualty and theft losses, see Pub. 547.

Easements The amount you receive for granting an easement is generally considered to be a sale of an interest in real property. It reduces the basis of the affected part of the property. If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Vehicle Credits Unless you elect not to claim the qualified electric vehicle credit, the alternative motor vehicle credit, the new clean vehicle credit, the previously owned clean vehicle credit, or the commercial clean vehicle credit for which you qualify, you may have to reduce the basis of each vehicle for which you claimed a credit, including any credit transferred to the dealer at the time you purchased the vehicle, by certain amounts reported. For more information on available credits, see Form 8834, Qualified Electric Vehicle Credit; Form 8910, Alternative Motor Vehicle Credit; Form 8936, Clean Vehicle Credits; and the related instructions. Residential Energy Credits You must reduce the cost basis of your home if a residential energy credit is allowed for any expense for any property. The increase in the basis of the property that would result from the expenses of the improvements to your home will be reduced by the amount of the allowed credit. Gas-Guzzler Tax Decrease the basis in your car by the gas -guzzler (fuel economy) tax if you begin using the car within 1 year of the date of its first sale for ultimate use. This rule also applies to someone who later buys the car and begins using it not more than 1 year after the original sale for ultimate use. If the car is imported, the 1 -year period begins on the date of entry or withdrawal of the car from the warehouse if that date is later than the date of the first sale for ultimate use.

Section 179 Deduction If you take the section 179 deduction for all or part of the cost of qualifying business property, decrease the basis of the property by the deduction. For more information about the section 179 deduction, see Pub. 946.

Exclusion of Subsidies for Energy Conservation Measures You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of any energy conservation measure for a dwelling unit. Reduce the basis of the property for which you received the subsidy by the excluded amount. For more information on this subsidy, see Pub. 525. Depreciation Decrease the basis of property by the depreciation you deducted, or could have deducted, on your tax returns under the method of depreciation you chose. If you took less depreciation than you could have under the method chosen, decrease the basis by the amount you could have taken under that method. If you didn't take a depreciation deduction, reduce the basis by the full amount of the depreciation you could have taken. 8 Publication 551 (12-2025)