1. What is Cost Basis?

Cost basis represents the total original investment in an asset for tax purposes. It includes the purchase price plus any additional costs such as commissions, fees, and other acquisition expenses.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• Purchase Price — The original price paid for the asset
• Commissions — Any brokerage fees or transaction costs

Explanation: The cost basis is fundamental for calculating capital gains or losses when the asset is eventually sold.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is essential for proper tax reporting, determining capital gains taxes, and making informed investment decisions.

4. Using the Calculator

Tips: Enter the purchase price and commissions in dollars. Both values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What expenses can be included in cost basis?
A: Besides purchase price and commissions, you can include transfer fees, legal fees, and other acquisition costs directly related to purchasing the asset.

Q2: How is cost basis used for tax purposes?
A: Cost basis is subtracted from the sale price to determine capital gains or losses, which are then reported on tax returns.

Q3: Does cost basis change over time?
A: Yes, cost basis can be adjusted for stock splits, dividends reinvested, capital improvements (for real estate), and other factors.

Q4: What's the difference between cost basis and adjusted basis?
A: Adjusted basis includes improvements and other adjustments to the original cost basis over time.

Q5: How do I calculate cost basis for inherited assets?
A: For inherited assets, the cost basis is typically the fair market value at the date of the previous owner's death.