Cost Basis definition

Cost basis in investing is the original value or purchase price of an asset—like a stock, bond, or mutual fund—including any associated costs like commissions or fees.

Here’s why it matters:

Your cost basis is used to determine your capital gain or loss when you sell the asset.

Example:

Let’s say you buy 100 shares of a stock at $10 per share:

Purchase cost = $1,000
You also pay a $10 commission
Your total cost basis = $1,010

Later, you sell the shares for $1,500.

Capital gain = $1,500 – $1,010 = $490
You’d owe taxes on that $490 gain (assuming no other adjustments).

Things That Can Affect Cost Basis:

Stock splits or dividend reinvestments
Additional purchases (you may need to use average cost or specific identification)
Return of capital distributions
Inherited or gifted securities (they follow different cost basis rules)

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Cost Basis

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