Basis: Useful Concept for Answering Enrolled Agent Exam Questions

May 13, 2018

Basis can be looked at as the taxpayer’s investment for tax purposes.  If someone buys a machine for $100 cash it’s easy - the basis is $100.  However, property can be acquired in many different ways.  That is where the expertise of an Enrolled Agent comes in handy.  To some degree, knowing about basis separates the professionals from the not-quite-professionals.  And knowing basis comes in handy on the exam as you will see many questions that require basis knowledge to answer corrrectly.

If property is acquired in any of the following ways, basis knowledge is needed.  And this is not a complete list.

  • Gift
  • Inheritance
  • Stock with controlling interest
  • Stock without controlling interest
  • Partnership interest
  • Partnership property
  • S corporation stock
  • Conversion from personal to business
  • Sold at a loss to a related party
  • Taxable exchange
  • Partly or non-taxable exchange
  • Lump-sum purchase

Learning about basis is challenging, but also highly interesting.  Becoming a tax professional with basis knowledge is a big step forward for may tax preparers.

Best wishes with your studies.


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