Cost Basis

Feedback

Feedback
When you buy an asset, the amount you paid for it is known as your cost basis. You can then use the cost basis to calculate if your investment has gained or lost; any profit you make on a sale of the asset could be subject to tax. Cost basis is commonly encountered when you buy stocks or bonds. The cost basis for stocks and bonds is generally the purchase price plus any commissions or fees you incur. For example, if you buy shares for $40 a share, with commissions and fees of $2, your cost basis is $42 a share. If the stock price rises and you sell the shares, your profit for tax purposes will generally be the difference between the $42 cost basis and the price at which you sold, minus any sales commissions or fees. For example, if you sell the stock at $50 a share and you incur commission costs of $2 a share, your gain is $6 ($48 minus $42). It is therefore important to keep a record of how much you paid for any securities you buy. You must also adjust the cost basis of stocks for certain events that may occur after purchase, such as stock splits.