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The original value of an asset for tax purposes, usually the purchase price plus commissions and other acquisition costs.
Cost basis is used to calculate capital gains or losses when an asset is sold. If you bought 100 shares at $50 (cost basis = $5,000) and sell at $70, your capital gain is $2,000. When you make multiple purchases at different prices, you can use methods like FIFO (first in, first out), specific identification, or average cost to determine your basis. Dividend reinvestments, stock splits, and return of capital distributions all affect cost basis. Accurate cost basis tracking is essential for tax compliance.