§ 25. Ascertainment of gain or loss; exchange of property. 1. For the
purpose of ascertaining the gain derived or loss sustained from the sale
or other disposition of property, real, personal or mixed, the basis
shall be the cost thereof, or the inventoried value if the inventory is
made in accordance with section twenty-six of this part.

2. Notwithstanding subdivision one of this section, with respect to
gain derived from the sale or other disposition of any property acquired
prior to January first, nineteen hundred sixty-six, except stock in
trade of the taxpayer or other property of a kind which would properly
be included in the inventory of the taxpayer if on hand at the close of
the taxable year, or property held by the taxpayer primarily for sale to
customers in the ordinary course of its trade or business, and accounts
or notes receivable acquired in the ordinary course of trade or business
from the sale of such stock in trade or property, or for services
rendered, net income shall not include

(a) That portion of the gain included in determining net income
pursuant to subdivision one of this section with respect to each such
property, which exceeds

(b) The amount of gain, if any, that would be included in determining
net income pursuant to subdivision one of this section with respect to
each such property if the basis of such property on the date of sale or
other disposition were equal to its fair market value on January first,
nineteen hundred sixty-six, plus or minus all adjustments to basis made
with respect to each such property in computing net income for periods
on or after January first, nineteen hundred sixty-six;
provided that the total adjustment to net income provided by this
subdivision shall not exceed the amount of the taxpayer's net gain from
the sale or other disposition of all such property, as determined
pursuant to subdivision one of this section.

3. Upon the sale or exchange of property the amount of the gain or
loss shall be determined in the manner prescribed by section fifteen of
this part and the basis of such property shall be determined in the
manner prescribed by section sixteen of this part.

4. In the case of any bond, with respect to which a deduction for
amortizable bond premium is allowable under paragraph (i) of subdivision
one of section twenty-nine of this part, the basis for determining gain
or loss shall be reduced by the total amount of such deductions so
allowable.