Business Assets: Tax Basis (2025 IRS Guide)

This guide covers “Business Assets” within tax basis. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 551 (12/2025), Basis of Assets, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

The basis of property you buy is usually its cost. The cost is the amount you pay in cash, debt obligations, other property, or services. Your cost also includes amounts you pay for the following items.

• Sales tax.

• Freight.

• Installation and testing.

• Excise taxes.

• Legal and accounting fees (when they must be capitalized).

• Revenue stamps.

• Recording fees.

• Real estate taxes (if assumed for the seller).

Business Assets

If you purchase property to use in your business, your basis is usually its actual cost to you. If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. In certain circumstances, you may be subject to the uniform capitalization rules (discussed next).

Uniform Capitalization Rules

The uniform capitalization rules specify the costs you add to basis in certain circumstances.

Activities subject to the rules.

You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. However, see Exceptions below.

• Produce real or tangible personal property for use in the business or activity.

• Produce real or tangible personal property for sale to customers.

• Acquire property for resale.

You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. Tangible personal property includes films, sound recordings, video tapes, books, or similar property.

Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. To capitalize means to include certain expenses in the basis of property you produce or in your inventory costs rather than deduct them as a current expense. You recover these costs through deductions for depreciation, amortization, or cost of goods sold when you use, sell, or otherwise dispose of the property.

Any cost you can't use to figure your taxable income for any tax year isn't subject to the uniform capitalization rules.

Example.

If you incur a business meal expense for which your deduction would be limited to 50% of the cost of the meal, that amount is subject to the uniform capitalization rules. The nondeductible part of the cost isn't subject to the uniform capitalization rules.

More information.

For more information about these rules, see the regulations under section 263A of the Internal Revenue Code and Pub. 538, Accounting Periods and Methods.

Exceptions.

For tax years beginning in 2025, you're not subject to the uniform capitalization rules if your average annual gross receipts are $31 million or less for the 3 preceding tax years and you're not a tax shelter. See section 263A(i).

Caution:

The average annual gross receipts test threshold amount may be adjusted for inflation. Publication 551 may not be revised to reflect this amount. For tax years beginning after 2025, see the instructions for your applicable income tax return for the average annual gross receipts test threshold amount for the current tax year. The average annual gross receipts test threshold amount is also available at IRS.gov/Newsroom/Inflation-Adjusted-Tax-Items-by-Tax-Year. Select the applicable tax year news release, then click the Revenue Procedure link to see the threshold amount under Limitation on Use of Cash Method of Accounting.

In addition, the following are not subject to the uniform capitalization rules.

• Property you produce that you don't use in your trade, business, or activity conducted for profit.

• Research and experimental expenses deductible under section 174 or 174A of the Internal Revenue Code.

• Qualified creative expenses you pay or incur as a freelance (self-employed) writer, photographer, or artist that are otherwise deductible on your tax return.

• Property you produce under a long-term contract, except for certain home construction contracts.

• Before 2018, costs for personal property acquired for resale if your (or your predecessor's) average annual gross receipts for the 3 previous tax years don't exceed $10 million.

For other exceptions to the uniform capitalization rules, see section 1.263A-1(b) of the regulations.

For information on the special rules that apply to costs incurred in the business of farming, see chapter 6 in Pub. 225, Farmer's Tax Guide.

Intangible Assets

Intangible assets include goodwill, patents, copyrights, trademarks, trade names, and franchises. The basis of an intangible asset is usually the cost to buy or create it. If you acquire multiple assets, for example, an ongoing business for a lump sum, see Allocating the Basis, later, to figure the basis of the individual assets. The basis of certain intangibles can be amortized. See the instructions for Form 4562 for information on the amortization of these costs.

Patents.

The basis of a patent you get for an invention is the cost of development, such as research and experimental expenditures, drawings, working models, and attorneys' and governmental fees. If you deduct the research and experimental expenditures as current business expenses, you can't include them in the basis of the patent. The value of the inventor's time spent on an invention isn't part of the basis.

Copyrights.

If you're an author, the basis of a copyright will usually be the cost of getting the copyright plus copyright fees, attorneys' fees, clerical assistance, and the cost of plates that remain in your possession. Don't include the value of your time as the author, or any other person's time you didn't pay for.

Franchises, trademarks, and trade names.

If you buy a franchise, trademark, or trade name, the basis is its cost, unless you can deduct your payments as a business expense.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 551 (12/2025), Basis of Assets: Cost Basis — Business Assets — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.