(a) Basis (unadjusted) of property. The basis of property shall be the cost of the property with the following exceptions:
(1) INVENTORY VALUE. If the property should have been included in the last inventory, the basis shall be the last inventory value thereof.
(2) GIFT or TRANSFER IN TRUST. If the property was acquired by gift or by a transfer in trust the basis shall be determined in accordance with 26 U.S.C. § 1015. If property was acquired by gift or transfer in trust on or after December 31, 1932 and prior to March 15, 1985, the basis shall be the fair and reasonable market value of the property at the time of the acquisition.
(3) PROPERTY TRANSMITTED AT DEATH. If the property was acquired from a decedent, the taxpayer's basis in the property shall be determined in accordance with 26 U.S.C. § 1014.
(4) PROPERTY ACQUIRED UPON LIKE-KIND EXCHANGE. If the property was acquired upon an exchange described in subsection (c) of Section 40-18-8, the basis shall be determined in accordance with 26 U.S.C. § 1031(d).
(5) TRANSFERS TO CORPORATION. The basis of property received by a distributee in a transaction described in subsection (e) or (f) of Section 40-18-8 shall be determined in accordance with 26 U.S.C. § 358. The basis of property acquired by a corporation in a transaction described in subsection (e) or (f) of Section 40-18-8 shall be determined in accordance with 26 U.S.C. § 362.
(6) PROPERTY ACQUIRED ON LIQUIDATION OF SUBSIDIARY. The basis of property acquired by a corporation as a result of a liquidation of a subsidiary to which Section 40-18-8(h) applies shall be determined in accordance with 26 U.S.C. § 334(b).
(7) BASIS OF PROPERTY OF SUBSIDIARY AFTER ACQUISITION. The basis of property owned by a corporation shall be determined under 26 U.S.C. § 338, relating to the treatment of certain stock purchases as asset acquisitions, if an election under the section is in effect for federal income tax purposes.
(8) BASIS OF PROPERTY RECEIVED IN LIQUIDATION IN WHICH GAIN OR LOSS IS RECOGNIZED. The basis of property received in a distribution in complete liquidation in which a gain or loss is recognized on the receipt of the property shall be determined in accordance with 26 U.S.C. § 334(a).
(9) BASIS OF STOCK AFTER STOCK DIVIDEND. The basis of stock with respect to which a corporation makes a distribution of its stock and the basis of the stock so distributed shall be determined in accordance with 26 U.S.C. § 307.
(10) INVOLUNTARY CONVERSION. If property was acquired in connection with an involuntary conversion in which a gain or loss was not recognized under subsection (d) of Section 40-18-8, the basis of the property shall be determined in accordance with 26 U.S.C. § 1033.
(11) PROPERTY ACQUIRED BEFORE JANUARY 1, 1933. The basis for determining gain or loss on the sale or disposition of property acquired prior to January 1, 1933, shall be the fair and reasonable market value as of January 1, 1933. In determining the fair and reasonable market value of stock in a corporation as of January 1, 1933, due regard shall be given to the fair and reasonable market value of the assets of the corporation as of that date.
(12) DETERMINATION OF AMOUNT OF LOSS OR GAIN OR OF DEPRECIATION OR DEPLETION. Whenever in the calculation of income taxable hereunder for any taxable year it is necessary to determine the amount of gain or loss or of depreciation or depletion in the case of property acquired before January 1, 1933, the basis of property shall be fixed in the same manner as is provided in subdivision (11) of this subsection.
(13) PROPERTY ACQUIRED FROM SPOUSE OR FORMER SPOUSE. If the property was acquired from a spouse or former spouse in a transaction in which a gain or loss was determined under Section 40-18-8(m), then the basis shall be determined in accordance with 26 U.S.C. § 1041.
(14) BASIS OF REPLACEMENT PROPERTY IN SALE OF STOCK TO EMPLOYEE STOCK OWNERSHIP PLAN OR COOPERATIVE. If, in connection with a sale of securities to an employee stock ownership plan or an eligible worker-owned cooperative, any gain was not recognized pursuant to Section 40-18-8(n), the basis of the qualified replacement property, as defined in 26 U.S.C. § 1042, shall be determined in accordance with 26 U.S.C. §1042(d).
(15) BASIS OF PROPERTY TO SUBCHAPTER K ENTITY. The basis of property contributed to a subchapter K entity under Section 40-18-8(o) shall be determined in accordance with 26 U.S.C. §723.
(16) BASIS OF INTEREST IN SUBCHAPTER K ENTITY.
a. Initial basis. The basis of an interest in a subchapter K entity resulting from a contribution of property described in Section 40-18-8(o) shall be determined in accordance with 26 U.S.C. §722.
b. Adjustments to basis. The basis determined under paragraph a. shall be increased or decreased in accordance with 26 U.S.C. §705. The amount of the increases and decreases shall be determined without regard to the allocation and apportionment rules of Section 40-18-22.
c. Special basis adjustments. If a subchapter K entity has in effect an election under 26 U.S.C. §754, the basis of the property of the subchapter K entity shall be determined in accordance with 26 U.S.C. §§734 and 743.
(17) BASIS OF PROPERTY DISTRIBUTED BY SUBCHAPTER K ENTITY. The basis of property distributed by a subchapter K entity shall be determined in accordance with 26 U.S.C. §732.
(b) Adjusted basis. The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis determined under subsection (a), adjusted as hereinafter provided. Proper adjustment in respect of the property shall in all cases be made:
(1) For expenditures, receipts, losses, or other items, properly chargeable to capital account, including taxes and other carrying charges on unimproved and unproductive real property, but no such adjustment shall be made for taxes or other carrying charges for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable year.
(2) For exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent allowed, but not less than the amount allowable under this chapter.
(3) In the case of stock, to the extent not provided for in the foregoing paragraphs, for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis.
(4) Basis of property of individuals establishing Alabama domicile. Property, both real and personal, owned on the date Alabama domicile is established shall have the same basis for Alabama income tax purposes as its basis for federal income tax purposes as of that date.
(5) Allocation of basis. The basis of property acquired in an applicable asset acquisition (as defined in 26 U.S.C. §1060) shall be determined in accordance with 26 U.S.C. §1060.
Last modified: May 3, 2021