Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

Which of the following represents the original basis in investment tax law?

1. Book value after depreciation

2. Cost of new construction or property acquisition

3. Value of improvements only

4. Adjusted cost after capital gains

The correct answer is: Cost of new construction or property acquisition

The original basis in investment tax law is represented by the cost of new construction or property acquisition. This concept is pivotal because it establishes the starting point for calculating depreciation, gains or losses upon sale, and other tax-related events. When an investor acquires a property or constructs a new building, the total financial outlay involved in that process—encompassing purchase price, closing costs, and any direct costs associated with construction—forms the basis for future tax calculations. This original basis is critical in determining the property value for depreciation purposes over its useful life, ultimately affecting the investor's taxable income. Other factors like book value after depreciation, the value of improvements only, or adjusted costs after capital gains pertain to different aspects of property value management and tax implications, but they originate from the initial cost incurred during acquisition or construction. Thus, the cost of new construction or property acquisition is foundational in tax law regarding property investment.