Basis
“Basis” is the tax law’s term for what a taxpayer has invested in an asset. Under §1012 of the IRC, the basis of property is generally its cost. Under §1001, gain on the disposition of property is the amount realized minus the adjusted basis. The basis subtraction is what converts a tax on the gross sale price into a tax on the net gain — the structural feature that distinguishes income taxation from a turnover tax.
Basis is allowed for almost every economic input the tax system recognizes. It is denied for the cost of acquiring or maintaining human capital — education, training, health care, child-rearing — under §262’s prohibition on deducting “personal, living, or family expenses.” This asymmetry is real and structurally important. It is the doctrinal feature underlying the “wages aren’t income” debate, even though that debate typically misidentifies the legal mechanism.
Basis is created (purchase, contribution), adjusted (improvements, depreciation), and consumed (sale, disposition). Tracking basis is the single most error-prone area of personal income tax compliance, and the place where the gap between the text of the Code and the experience of ordinary taxpayers is widest.