Basis usually starts out as equal to cost. However, property inherited from a decedent has a basis equal to the estate tax value in the decedent’s estate which is usually the date of death value but in some cases it may be the value six months after the date of death.
There are some exceptions to this general rule. Property acquired by gift has the same basis to the donee as it had to the donor, or its fair market value, whichever is lower. If gift tax was paid on the gift, the amount of that tax increases the donee’s basis, even though the tax is imposed on, and usually paid by, the donor.
However, gain or loss is measured against adjusted basis, and basis may be adjusted by many things. Among the adjustments to basis are depreciation and items required to capitalized.