Proof of Cost

Helpful documents: Property Basis Trade In - Property Basis New Equipment Purchase - EQUIPMENT ADDITIONS (an html version for those not using Excel) - 

Related Topics:

1. Property Basis - Acquired by Gifts

2. Property Basis - Acquired by Inheritance

3. Property Basis - Recvd by Inheritance 2

4. Property Basis Acquired By Reacquisition

5. Property - Sale of - Gain or Loss

Burden of proof
The taxpayer has the burden of proving the cost of property acquired by purchase. 91 If the taxpayer fails to do so, the cost basis determined by the IRS is the taxpayer's basis. 92 In certain instances, the IRS has determined that the basis is zero. 93
/Footnote/ 91 E.g., Alameda Realty Corp. v. Comr., 42 T.C. 273 (1964).
/Footnote/ 92 E.g., Inter-City Television Film Corp. v. Comr., 43 T.C. 270 (1964).
/Footnote/ 93 E.g., Anderson v. Comr., T.C. Memo. 1995-510; Spurgeon v. Comr., T.C. Memo 1977-326.

Substantial Evidentiary Documentation
The best proof of cost are the records of cost, but if those are destroyed, the taxpayer can prove cost through the use of expert testimony, extensive building plans, and numerous photos. 94 Occasionally, the taxpayer's testimony has been sufficient. 95 Another type of useful evidence is proof of bank account withdrawals made shortly before the purchase. 96 Reproduction cost is not determinative of actually incurred cost and thus does not constitute basis. 97
/Footnote/ 94 Alameda Realty Corp. v. Comr., 42 T.C. 273 (1964).
/Footnote/ 95 E.g., Young v. Comr., T.C. Memo 1985-221.
/Footnote/ 96 See Burr v. Comr. , T.C. Memo 1966-112.
/Footnote/ 97 See Avery v. Comr. , T.C. Memo 1995-296.

Payments to Family Members
L and her husband, S, build their own mountain resort cabin, using a prefabricated kit. The kit costs $40,000. They hire their two teen-age children to assist in the work, and pay each of them $10,000 for their services. Had they paid third-party contractors for the work performed by the children, the charge would have totalled $15,000. L and S have a $55,000 basis in the cabin, and are treated as having made a $2,500 gift to each child.   The gifts will reduce the Unified Credit and must be reported on a required Gift Tax Return (Gift Tax Returns are required when the transfer of money, property, payment of bills for the individual, etc. exceed $10,000 per year per donee.  There are few exceptions to this rule.  All such transfers, gifts, payments etc. must be summed to determine the total.)

If the taxpayer performs labor in the construction of his or her own property, nothing is added to adjusted basis on account of those efforts. 107
/Footnote/ 107 Hix v. Comr., T.C. Memo 1979-105.

No Additional Basis for Own Labor

Reductions to Basis

Some items that reduce the basis of property are:

1. The section 179 deduction,
2. The deduction for clean-fuel vehicles and clean-fuel vehicle refueling property,
3. Exclusion from income of subsidies for energy conservation measures,
4. Credit for qualified electric vehicles,
5. Depreciation, and
6. Nontaxable corporate distributions.