Question

Christine wants to sell come property but needs to determine the basis first. Which of the following items increase her original basis?

a) Discounts, rebates, or reimbursements of the purchase price
b) Insurance reimbursements for property damage
c) Tax credits received through ownership of the asset
d) The cost of capital improvements

Answer 1

The cost of capital improvements is the item that increases Christine's original basis in her property. Discounts, rebates, reimbursements, and tax credits do not increase the basis. Therefore, the correct option is D.

Step-by-step explanation:

Christine is interested in selling some property and is looking at factors that would increase her original basis in the property. In assessing the options:

• Discounts, rebates, or reimbursements of the purchase price would not increase the original basis; these items typically reduce the basis because they decrease the overall cost of acquisition.
• Insurance reimbursements for property damage typically compensate for losses and do not affect the basis unless they result in capital improvements.
• Tax credits received for the ownership of an asset do not generally affect the basis of property.
• The cost of capital improvements is indeed something that would increase the original basis of the property. An example of this expense is illustrated by case b where Freda's home value increased potentially due to improvements or market conditions, and by case c with Ben's home value increasing possibly due to similar reasons.

Therefore, among the options provided, d) The cost of capital improvements would be the correct choice that increases Christine's original basis in her property.