How Does My Basis Change?

Time changes everything—even your basis in your property.

Over time, you may make changes on your property that increase or reduce the value of your land. Your original investment or basis plus these additions or reductions equals your adjusted basis.

If the changes will last for many years and improve the property permanently, then they increase your basis. These are known as “capital additions.” Some examples of capital additions include:

• Building permanent roads
• Erecting permanent structures
• Planting new trees

Short-lived changes or recurring expenses that are ordinary and necessary don’t count as capital additions. These might include:

• Weed control costs or other management activities

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• Building a temporary road to facilitate a timber harvest
• Erecting a temporary storage shed for use during a construction project

You can also reduce your basis if something happens that decreases the value of your property. These “capital reductions” include:

• Timber harvests, because they remove some of the trees that contribute to your basis
• A casualty loss, such as a natural disaster, that damages your land or the improvements on it

Whether you’re calculating your basis for the first time or determining how it has changed, your trees figure prominently. That’s why it’s important to understand how to allocate your basis between your land and your trees.