Sources: IRS, SEC, Federal Reserve, U.S. Bureau of Labor Statistics & U.S. Census Bureau. See our editorial standards.
The original value of an asset for tax purposes, used to calculate capital gains or losses when you sell.
Definition: The original value of an asset for tax purposes, used to calculate capital gains or losses when you sell.
Cost basis is what you originally paid for an investment, including commissions and reinvested dividends. Accurate cost-basis tracking is essential because it determines your taxable gain when you sell. Reinvested dividends raise your basis, so forgetting to count them is a common way investors accidentally overpay taxes.
Taxable gain = sale proceeds − cost basis.
You buy 100 shares at $20 ($2,000) and reinvest $150 of dividends. Your cost basis is $2,150, so selling for $3,000 produces an $850 taxable gain, not $1,000.
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