Basis of property you receive for services

Two related rules

Publication 551 groups two situations under basis other than cost. The first is property you receive as payment for services. The second is a bargain purchase, which the publication defines as a purchase of an item for less than its fair market value. In both cases the starting point is fair market value, which the publication defines as the price at which property would change hands between a buyer and a seller, neither having to buy or sell, and both having reasonable knowledge of the necessary facts. Sales of similar property on or about the same date may help establish it.

Property received for services

If you receive property for services, you include its fair market value in income. The amount you include in income becomes your basis. The logic is that you have already paid tax on that value, so you do not want to be taxed on it again when you sell. If the services were performed for a price agreed on beforehand, the agreed price will be accepted as the fair market value if there is no evidence to the contrary.

A simple illustration, our own rather than the publication's: a contractor agrees to repair a roof for a used trailer, and the written agreement values the trailer at $4,000. The contractor includes $4,000 in income and has a $4,000 basis in the trailer. If the contractor later sells it for $4,500, the gain is $500 measured from that basis.

Bargain purchases as compensation

A bargain purchase is a purchase of an item for less than its fair market value. If, as compensation for services, you purchase goods or other property at less than fair market value, you include the difference between the purchase price and the fair market value in income. Your basis in the property is its fair market value, which equals your purchase price plus the amount you include in income. For example, if an employer sells you equipment worth $1,000 for $600 as part of your compensation, you include $400 in income and have a basis of $1,000. This figure is an illustration of the rule.

Qualified employee discounts

If the difference between your purchase price and the fair market value represents a qualified employee discount, you do not include the difference in income. Even then, the publication says your basis in the property is still its fair market value. This is an unusual result worth noticing: you pay less, you report nothing, but your basis is the higher value. The rules that decide whether a discount qualifies are in Publication 15-B, Employee Discounts, which the publication cites; the calculator's checkbox assumes the discount qualifies.

Why basis equals value here

The idea behind both rules is that value you received for work is income, so it gets a matching cost. Including the value in income and using it as basis keeps you from being taxed twice on the same dollars when you sell.

Related ordinary-cost rule

For comparison, the general cost rule says the basis of property you buy is usually its cost, which can include cash, debt obligations, other property or services. If you give property or services as payment, the publication counts that as cost. The services rule is the mirror image: the services you provide are paid for with property, and the property takes the value you included in income.

A word on what counts as services

The publication's wording covers property you receive as payment for services, and the same treatment of a bargain price applies when the purchase is part of your compensation. The facts that matter are therefore whether the property reached you because of work you did, what it was worth on the day you got it, and what, if anything, you paid. Those three numbers are the three boxes you need, and the calculator turns them into income and basis.

Records to keep

Keep the written agreement showing the agreed price, any appraisal or comparable sales that support fair market value, the payroll or invoice record that shows how much you reported as income, and the date you received the property. Those records matter at sale time, when the IRS or a buyer asks how you arrived at your basis.

Sources

• IRS Publication 551, Basis of Assets (12/2025): Basis Other Than Cost, Property Received for Services, Bargain Purchases; Cost Basis. Read November 2, 2026.

Edition read: Publication 551 (12/2025). The two dollar illustrations above are ours, not the publication's. This page folds in the bargain-purchase question because the publication handles both rules in the same place. It summarizes the publication and does not replace it.