Cost of Acquisition & Improvement

Cost of acquisition and improvement rules clarify how intangibles and other assets determine tax basis for capital gains.

Cost allocation for capital-gains tax distinguishes cost of acquisition and cost of improvement: cost of improvement is nil for specified intangibles and rights; purchased intangibles take purchase price as cost of acquisition while other cases may be Nil or indeterminate. For non-intangible capital assets the cost is either original cost or fair market value as of a statutory base date-whichever is higher when applicable-or the acquisition price depending on date of acquisition. Special rules govern liquidation distributions (FMV at distribution), unascertainable prior cost (FMV when asset became property of previous owner), and securities (treatment of original, rights, renouncements and bonus issues).