Cost Basis
Cost basis is the original value or purchase price of an asset for tax purposes. Capital gains tax is calculated on the difference between the sale price and the cost basis.
If you buy 10 shares of a stock at $50 each ($500 total) and later sell them for $800, your cost basis is $500 and your capital gain is $300.
Cost basis gets more complex when you've made multiple purchases at different prices (FIFO, LIFO, or average cost methods apply), received dividends that were reinvested, or inherited assets (stepped-up basis).
Proper cost basis tracking is essential for accurate capital gains tax reporting. Brokerage firms are now required to report adjusted cost basis to the IRS for most securities.
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Open calculator →Related terms
- Capital Gains
- A capital gain is the profit from selling an asset (stock, real estate, crypto, etc.) for more than you paid. In most countries, capital gains are taxed differently from ordinary income.
- Tax Bracket
- A tax bracket is a range of income taxed at a specific rate in a progressive tax system. Each bracket rate applies only to the income within that range, not to your entire income.
- Effective Tax Rate
- Your effective tax rate is your total tax paid divided by your total income, expressed as a percentage. It is always lower than your marginal rate in a progressive tax system.