Advance payments reduce capital gains cost basis when not previously taxed under income provisions during negotiation. Advance payments received and retained by an assessee during negotiations for transfer of a capital asset must be deducted from the asset's cost of acquisition, written down value or fair market value, as applicable, when computing cost of acquisition for capital gains. However, if such an advance has already been included in the assessee's total income under the income inclusion provisions, it shall not be deducted from the asset's cost basis.