Sec. 113. (b) Adjusted basis.- Sec. 113. (b) Adjusted basis.— The adjusted basis for determin- The adjusted basis for determining the gain or loss from the sale ing the gain or loss from the sale or other disposition of property, or other disposition of property, whenever acquired, shall be the whenever acquired, shall be the basis determined under subsection basis determined under subsection (a), adjusted as hereinafter pro- (a), adjusted as hereinafter provided. vided. Sec. 113. (b) (1) General rule. -Proper adjustment in respect of the property shall in all cases be made Sec. 113. (b) (1) General rule.— Proper adjustment in respect of the property shall in all cases be made productive real property, but no (A) For expenditures, receipts, (A) For expenditures, receipts, losses, or other items, properly losses, or other items, properly chargeable to capital account, in-chargeable to capital account, including taxes and other carrying cluding taxes and other carrying charges on unimproved and un- charges on unimproved and unproductive real property, but no such adjustment shall be made for taxes or other carrying charges for which deductions have been taken by the taxpayer in determining net income for the taxable year or prior taxable years; (B) in respect of any period (B) in respect of any period since February 28, 1913, for ex- since February 28, 1913, for exhaustion, wear and tear, obsoles-haustion, wear and tear, obsolescence amortization and depletion, cence, amortization and depletion, to the extent allowed (but not less to the extent allowed (but not less than the amount allowable) under than the amount allowable) under this chapter or prior income tax this chapter or prior income tax laws. Where for any taxable year laws. Where for any taxable year prior to the taxable year 1932 the prior to the taxable year 1932 the depletion allowance was based on depletion allowance was based on discovery value or a percentage of discovery value or a percentage of income, then the adjustment for income, then the adjustment for depletion for such year shall be depletion for such year shall be based on the depletion which based on the depletion which would have been allowable for such would have been allowable for such year if computed without refer- year if computed without reference to discovery value or a per- ence to discovery value or a percentage of income; centage of income; Taxable Years Beginning before 1939 Sec. 113. (b) Adjusted basis. Sec. 113. (b) (1) General rule. Taxable Years Taxable Years Taxable Years (D) in the case of stock (to the the extent not provided for in the foregoing subparagraphs) for the foregoing subparagraphs) for the foregoing subparagraphs) for the (C) in respect of any period (C) in respect of any period (C) in respect of any period prior to March 1, 1913, for exhaus- prior to March 1, 1913, for exhaus- prior to March 1, 1913, for exhaustion, wear and tear, obsolescence, tion, wear and tear, obsolescence, tion, wear and tear, obsolescence, amortization, and depletion, and depletion, to amortization, and depletion, to amortization, and depletion, to amortization, and depletion, to the extent sustained; the extent sustained; the extent sustained; (D) in the case of stock (to (D) in the case of stock (to the extent not provided for in the the extent not provided for in the amount of distributions previously amount of distributions previously amount of distributions previously made which, under the law appli- made which, under the law appli- made which, under the law applicable to the year in which the dis- cable to the year in which the dis- cable to the year in which the distribution was made, either were tribution was made, either were tribution was made, either were tax-free or were applicable in re- tax-free or were applicable in re- tax-free or were applicable in reduction of basis (not including duction of basis (not including duction of basis (not including distributions made by a corpora- distributions made by a corpora- distributions made by a corporation, which was classified as a per- tion, which was classified as a per- tion, which was classified as a personal service corporation under sonal service corporation under sonal service corporation under the provisions of the Revenue Act the provisions of the Revenue Act of 1918, Feb. 24, 1919, c. 18, 40 of 1918, Feb. 24, 1919, c. 18, 40 Stat. 1057, or the Revenue Act of Stat. 1057, or the Revenue Act of 1921, Nov. 23, 1921, c. 136, 42 Stat. 1921, Nov. 23, 1921, c. 136, 42 Stat. 227, out of its earnings or profits 227, out of its earnings or profits which were taxable in accordance which were taxable in accordance with the provisions of section 218 with the provisions of section 218 of the Revenue Act of 1918 or of the Revenue Act of 1918 or 1921); 1921); the provisions of the Revenue Act of 1918, Feb. 24, 1919, c. 18, 40 Stat. 1057, or the Revenue Act of 1921, Nov. 23, 1921, c. 136, 42 Stat. 227, out of its earnings or profits which were taxable in accordance with the provisions of section 218 of the Revenue Act of 1918 or 1921); (E) to the extent provided in (E) to the extent provided in (E) to the extent provided in section 337 (f) in the case of the section 337 (f) in the case of the section 337 (f) in the case of the stock of United States share- stock of United States share-stock of United States shareholders in a foreign personal hold- holders in a foreign personal hold- holders in a foreign personal holding company; and ing company; and ing company; and (F) to the extent provided in (F) to the extent provided in (F) to the extent provided in section 28 (h) in the case of section 28 (h) in the case of section 28 (h) in the case of amounts specified in share- amounts specified in a share- amounts specified in a holder's consent made under tion 28. a sec (G) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 123 of this chapter, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability. shareholder's consent made under sec- holder's consent made under section 28. tion 28. (G) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 123 of this chapter, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability. (H) in the case of any bond (as (H) in the case of any bond (as defined in section 125) the interest defined in section 125) the interest on which is wholly exempt from the on which is wholly exempt from the tax imposed by this chapter, to the tax imposed by this chapter, to the extent of the amortizable bond pre-extent of the amortizable bond premium disallowable as a deduction mium disallowable as a deduction pursuant to section 125 (a) (2), pursuant to section 125 (a) (2), and in the case of any other bond and in the case of any other bond (as defined in such section) to the (as defined in such section) to the extent of the deductions allowable extent of the deductions allowable pursuant to section 125 (a) (1) pursuant to section 125 (a) (1) with respect thereto. with respect thereto. (G) in the case of property pledged to the Commodity Credit Corporation, to the extent of the amount received as a loan from the Commodity Credit Corporation and treated by the taxpayer as income for the year in which received pursuant to section 123 of this chapter, and to the extent of any deficiency on such loan with respect to which the taxpayer has been relieved from liability. Sec. 113 (b) (1), I. R. C., supra, amended by Sec. 223 (b), R. A. of 1939, to read as above. Sec. 223 (c) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1938. For Sec. 113 (b) (1), I. R. C., before amendment, see explanation under Sec. 113 (b) (1) in 1939 column. Years in 1941 of (C) in respect of any period (C) in respect of any period prior to March 1, 1913, for exhaus- prior to March 1, 1913, for exhaustion, wear and tear, obsolescence, tion, wear and tear, obsolescence, de amortization, and depletion, to amortization, and depletion, to the extent sustained; the extent sustained; of (D) in the case of stock (to the extent not provided for in the foregoing subparagraphs) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis (not including (D) in the case of stock (to the extent not provided for in the foregoing subparagraphs) for the amount of distributions previously made which, under the law applicable to the year in which the distribution was made, either were tax-free or were applicable in reduction of basis (not including distributions made by a corpora- distributions made by a corporation, which was classified as a per- tion, which was classified as a personal service corporation under sonal service corporation under the provisions of the Revenue Act the provisions of the Revenue Act of 1918, Feb. 24, 1919, c. 18, 40 of 1918, Feb. 24, 1919, c. 18, 40 Stat. 1057, or the Revenue Act of Stat. 1057, or the Revenue Act of 1921, Nov. 23, 1921, c. 136, 42 Stat. 1921, Nov. 23, 1921, c. 136, 42 Stat. 227, out of its earnings or profits 227, out of its earnings or profits which were taxable in accordance which were taxable in accordance with the provisions of section 218 with the provisions of section 218 of the Revenue Act of 1918 or of the Revenue Act of 1918 or 1921); 1921); (E) to the extent provided in section 337 (f) in the case of the stock of United States shareholders in a foreign personal holding company; and (E) to the extent provided in section 337 (f) in the case of the stock of United States shareholders in a foreign personal holding company; and (F) to the extent provided in (F) to the extent provided in secsection 28 (h) in the case of tion 28 (h) in the case of amounts amounts specified in a share-specified in a shareholder's conholder's consent made under sec- sent made under section 28. tion 28. (G) in the case of property (G) in the case of property pledged to the Commodity Credit pledged to the Commodity Credit Corporation, to the extent of the Corporation, to the extent of the amount received as a loan from the amount received as a loan from the Commodity Credit Corporation and Commodity Credit Corporation and treated by the taxpayer as income treated by the taxpayer as income for the year in which received purfor the year in which received pursuant to section 123 of this chapter, suant to section 123 of this chap- and to the extent of any deficiency ter, and to the extent of any defi- on such loan with respect to which ciency on such loan with respect to the taxpayer has been relieved from which the taxpayer has been re- liability. lieved from liability. Sec. 113 (b) (1), I. R. C., supra, amended by Sec. 223 (b), R. A. of 1939, to read as above. Sec. 223 (c) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1938. For Sec. 113 (b) (1), I. R. C., before amendment, see explanation under Sec. 113 (b) (1) in 1939 column. Sec. 113 (b) (1), I. R. C., supra, amended by Sec. 223 (b), R. A. of 1939, by adding subparagraph (G), supra. Sec. 223 (c) of said Act makes amendment applicable to taxable years beginning after Dec. 31, 1938. Taxable Years Beginning before 1939 Taxable Years Sec. 101 of said Act makes amendments applicable to taxable years beginning after Dec. 31, 1941. For Sec. 113 (b) (1) (a), I. R. C., before amendment, see 1942 column. Taxable Years Sec. 113 (b) (1), I. R. C., again amended by Sec. 126 (c), R. A. of 1942, by adding subparagraph (H), shown in italics. Sec. 101 of said Act makes amendments applicable to taxable years beginning after Dec. 31, 1941. Taxable Years Sec. 113. (b) (2) Substituted Sec. 113. (b) (2) Substituted Sec. 113. (b) (2) Substituted basis.-The term "substituted basis.-The term "substituted basis.-The term "substituted basis" as used in this subsection basis" as used in this subsection basis" as used in this subsection means a basis determined under means a basis determined under means a basis determined under any provision of subsection (a) of any provision of subsection (a) of any provision of subsection (a) of this section or under any corre- this section or under any corre- this section or under any corresponding provision of a prior in- sponding provision of a prior in-sponding provision of a prior income tax law, providing that the come tax law, providing that the come tax law, providing that the basis shall be determinedbasis shall be determinedbasis shall be determined- (A) by reference to the basis in the hands of a transferor, donor, or grantor, or (B) by reference to other property held at any time by the person for whom the basis is to be determined. (A) by reference to the basis in the hands of a transferor, donor, For grantor, or (B) by reference to other property held at any time by the person for whom the basis is to be determined. (A) by reference to the basis in the hands of a transferor, donor, or grantor, or (B) by reference to other property held at any time by the person for whom the basis is to be determined. Whenever it appears that the basis Whenever it appears that the basis Whenever it appears that the basis of property in the hands of the of property in the hands of the of property in the hands of the taxpayer is a substituted basis, taxpayer is a substituted basis, taxpayer is a substituted basis, then the adjustments provided in then the adjustments provided in then the adjustments provided in paragraph (1) of this subsection paragraph (1) of this subsection paragraph (1) of this subsection shall be made after first making in shall be made after first making in shall be made after first making in respect of such substituted basis respect of such substituted basis respect of such substituted basis proper adjustments of a similar proper adjustments of a similar proper adjustments of a similar nature in respect of the period nature in respect of the period nature in respect of the period during which the property was during which the property was during which the property was held by the transferor, donor, or held by the transferor, donor, or held by the transferor, donor, or grantor, or during which the other grantor, or during which the other grantor, or during which the other property was held by the person property was held by the person for whom the basis is to be determined. A similar rule shall be applied in the case of a series of substituted bases. for whom the basis is to be deter- property was held by the person for whom the basis is to be determined. A similar rule shall be applied in the case of a series of substituted bases. Sec. 113. (b) (3) Discharge of Sec. 113. (b) (3) Discharge of Sec. 113. (b) (3) Discharge of indebtedness. Where in the case indebtedness.-Where in the case indebtedness.-Where in the case of a corporation any amount is ex- of a corporation any amount is ex- of a corporation any amount is excluded from gross income under cluded from gross income under cluded from gross income under section 22 (b) (9) on account of section 22 (b) (9) on account of section 22 (b) (9) on account of the discharge of indebtedness the the discharge of indebtedness the the discharge of indebtedness the whole or a part of the amount so whole or a part of the amount so whole or a part of the amount so excluded from gross income shall excluded from gross income shall excluded from gross income shall be applied in reduction of the basis be applied in reduction of the basis be applied in reduction of the basis of any property held (whether be of any property held (whether be of any property held (whether before or after the time of the dis- fore or after the time of the dis- fore or after the time of the discharge) by the taxpayer during charge) by the taxpayer during charge) by the taxpayer during any portion of the taxable year in any portion of the taxable year in any portion of the taxable year in which such discharge occurred. which such discharge occurred. which such discharge occurred. The amount to be so applied (not The amount to be so applied (not The amount to be so applied (not in excess of the amount so excluded in excess of the amount so excluded in excess of the amount so excluded from gross income, reduced by the from gross income, reduced by the from gross income, reduced by the amount of any deduction disal- amount of any deduction disal- amount of any deduction disallowed under section 22 (b) (9)) lowed under section 22 (b) (9)) lowed under section 22 (b) (9)) and the particular properties to and the particular properties to and the particular properties to which the reduction shall be allo- which the reduction shall be allo- which the reduction shall be allocated, shall be determined under cated, shall be determined under cated, shall be determined under regulations (prescribed by the Com-regulations (prescribed by the Com-regulations (prescribed by the Taxable Years Taxable Years Taxable Years Beginning before 1939 See p. 174, Eighth Edition. Sec. 113. (b) (2) Substituted Sec. 113. (b) (2) Substituted Sec. 113. (b) (2) Substituted basis.-The term "substituted basis.-The term "substituted basis. basis" as used in this subsection basis" as used in this subsection means a basis determined under means a basis determined under any provision of subsection (a) of any provision of subsection (a) of this section or under any corre- this section or under any corressponding provision of a prior in- ponding provision of a prior income tax law, providing that the come tax law, providing that the basis shall be determinedbasis shall be determined— (A) by reference to the basis in the hands of a transferor, donor, or grantor, or (B) by reference to other property held at any time by the person for whom the basis is to be determined. (A) by reference to the basis in the hands of a transferor, donor, or grantor, or (B) by reference to other property held at any time by the person for whom the basis is to be determined. Whenever it appears that the basis Whenever it appears that the basis for whom the basis is to be deter- Sec. 113. (b) (3) Discharge of Sec. 113. (b) (3) Discharge of indebtedness.-Where in the case indebtedness.-Where in the case of a corporation any amount is ex- of a corporation any amount is exeluded from gross income under cluded from gross income under section 22 (b) (9) on account of section 22 (b) (9) on account of the discharge of indebtedness the the discharge of indebtedness the whole or a part of the amount so whole or a part of the amount so excluded from gross income shall excluded from gross income shall be applied in reduction of the basis be applied in reduction of the basis of any property held (whether be- of any property held (whether before or after the time of the dis- fore or after the time of the discharge) by the taxpayer during charge) by the taxpayer during any any portion of the taxable year in portion of the taxable year in which which such discharge occurred. such discharge occurred. The The amount to be so applied (not amount to be so applied (not in in excess of the amount so excluded excess of the amount so excluded from gross income, reduced by the from gross income, reduced by the amount of any deduction disal- amount of any deduction disallowed lowed under section 22 (b) (9)) under section 22 (b) (9)) and the and the particular properties to particular properties to which the which the reduction shall be allo- reduction shall be allocated, shall cated, shall be determined under be determined under regulations regulations (prescribed by the (prescribed by the Commissioner |