J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

5.19 Allocating Cost Among Several Assets

Allocation of basis is generally required in these cases: when the property includes land and building; the land is to be divided into lots; securities or mutual-fund shares are purchased at different times; stock splits; and in the purchase of a business.

Purchase of land and building.

To figure depreciation on the building, part of the purchase price must be allocated to the building. The allocation is made according to the fair market values of the building and land. The amount allocated to land is not depreciated.

Purchase of land to be divided into lots.

The purchase price of the tract is allocated to each lot, so that the gain or loss from the sale of each lot may be reported in the year of its sale. Allocation is not made ratably, that is, with an equal share to each lot or parcel. It is based on the relative value of each piece of property. Comparable sales, competent appraisals, or assessed values may be used as guides.

Securities.

See 30.2 for details on methods of identifying securities bought at different dates. See 30.3 for allocating basis of stock dividends and stock splits and 30.4 for allocating the basis of stock rights.

Mutual-fund shares.

See 32.10 for determining the basis of mutual-fund shares where purchases were made at different times.

Purchase price of a business.

See 44.9 for allocation rule.