Cost Basis

Cost basis refers to the original value of an asset for tax purposes. It is usually the amount paid to acquire the asset, or its value at the time you received it. When figuring your cost basis, you also need to include factors like dividends reinvested, stock splits, and distributions that may affect the value over time.

A common way to determine cost basis for shares is to divide your total investment by the number of shares you hold, known as the average cost method. Understanding your cost basis is essential when selling assets, since it’s used to calculate your capital gains or losses, which directly impacts the taxes you may owe.