Cost basis

Cost basis

The original price of an asset, used to determine capital gains.

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cost basis

See basis.

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Cost Basis

1. The price of an asset for tax purposes. That is, one uses the cost basis of an asset to determine the capital gain or loss on an investment. For example, if an investor buys 1,000 shares of a stock for $10 per share and, at the end of the tax year, the stock is worth $15 per share, the cost basis is $10 per share. The investor uses this to determine that his/her capital gain on that stock for the tax year was $5 per share. It is important to note, however, that the cost basis is rarely the simple purchase price; it also includes applicable fees or commissions paid to the broker. This would increase the cost basis in the above example and thereby reduce the investor's capital gain.

2. The difference between the present price of a commodity and the futures price. See also: Spread.

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Cost basis. The cost basis is the original price of an asset -- usually the purchase price plus commissions. You use the cost basis to calculate capital gains and capital losses, depreciation, and return on investment.

If you inherit assets, such as stocks or real estate, your cost basis is the asset's value on the date the person who left it to you died (or the date on which his or her estate was valued). This new valuation is known as a step-up in basis.

For example, if you buy a stock at $20 a share and sell it for $50 a share, your cost basis is $20. If you sell, you owe capital gains tax on the $30-a-share profit.

If you inherit stock that was bought at $20 a share but valued at $50 a share when that person died, your cost basis would be $50 a share, and you'd owe no tax if you sold it at that price.