What Is Cost Basis | Fidelity Institutional (2024)

FAQs

What is meant by cost basis? ›

Cost basis is the original value of an asset for tax purposes—usually the purchase price, adjusted for stock splits, dividends, and return of capital distributions. This value is used to determine the capital gain, which is equal to the difference between the asset's cost basis and the current market value.

The Bottom Line. Cost basis is the original value or purchase price of an asset or investment for tax purposes. It is used to calculate capital gains or losses, which is the difference between the selling and purchase prices of capital assets. Tracking cost basis is required for tax purposes.

Cost basis is the price you paid to purchase a security plus any additional costs such as broker's fees or commissions. When you sell a security, your tax liability is determined by how much you spent to buy the security (cost basis) and your sales price.

The broker/1099-B issuer does not know the basis, so you have to enter it. If you do not know the basis, you will need to enter $0, which will maximize what you pay in tax on that transaction. Cost basis is the amount you paid to acquire the security.

The IRS expects taxpayers to keep the original documentation for capital assets, such as real estate and investments. It uses these documents, along with third-party records, bank statements and published market data, to verify the cost basis of assets.

Average cost is calculated by taking the total cost of the shares you own and dividing by the total number of shares. Be aware, if you select this method for cost basis reporting, you must use it for all shares bought before that initial stock sale.

To calculate an asset's or security's adjusted basis, you simply take its purchase price and then add or subtract any changes to its initial recorded value. Capital gains tax is paid on the difference between the adjusted basis and the amount the asset or investment was sold for.

For stocks and bonds, the cost basis is generally your purchase price for the securities, including reinvested dividends or reinvested capital gains distributions, plus additional costs such as the commission or other fees you paid to complete the transaction.

You may not change a position's cost basis if it's coded with a known cost basis. To update an individual security's cost basis, you'll need to have an old statement or confirmation that indicates the cost you paid.

What is the difference between proceeds and cost basis? ›

Investors compare their cost basis to sales proceeds to determine the overall gain or loss. Cost basis represents the overall amount paid to buy the security, including any commission. Sales proceeds represents the overall amount received to sell a security, minus commission.

If the cost basis information that is reported on your Form 1099-B is incorrect, you can report a correction to the IRS using Form 8949. Note: This is provided for informational purposes only.

Typically, when you purchase shares of stock, the cost basis is simply the price you paid for each share. Say you purchased 10 shares of XYZ for $100 per share in a taxable brokerage account. The total cost would be $1,000, and your cost basis for each individual share would be $100.

You can do that by going to the company's website, BigCharts, or Yahoo Finance to find historical high and low prices for that period. (They should be adjusted for any splits.) With that information, you can then estimate your capital gains. Average the two prices, then multiply the total by the number of shares sold.

Let's say you buy 50 shares of Company A for $20 per share. The total cost of this purchase is $1,000 (50 shares x $20). This becomes your cost basis.

The cost includes the cost of materials, equipment, and labor. However, you may not add the cost of your own labor to the property's basis. Add the interest you pay on construction loans during the construction period, but deduct interest you pay before and after construction as an operating expense.