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When used on tax accounting matters, the term carryover basis refers to the use of an adjusted acquisition cost, or adjusted tax basis, for calculation of liable tax.
This can occur even after a property has already changed hands.
There are 2 common scenarios when carryover basis is used.
The first is when someone receives a property as a gift.
The second when there is a 1031 exchange whereby a property is exchanged for another.
For example, if 2 parties make a property exchange transaction. If the a party’s adjusted tax basis is $5,000, then the carryover basis will be $5,000 for the property acquired.