To determine the initial basis of purchased property, cost is used unless it is a bargain transaction in which case its fair market value is used.

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According to the IRS, the initial basis of purchased property is generally determined by its cost, which includes not only the purchase price but also any additional costs such as closing costs, legal fees, and survey fees. However, if the property was acquired in a bargain sale, gift, inheritance, or certain other situations, the fair market value of the property at the time of acquisition may be used instead of cost to determine the initial basis.

To Determine the Initial Basis of Purchased Property, Cost Is