What is Cost Basis?
Definition Cost basis is your total investment in an asset for tax purposes, generally the purchase price plus commissions, fees, and the cost of improvements. It is subtracted from the sale price to determine your taxable gain or loss, and it can be adjusted over time for events like reinvested dividends or depreciation. Inherited and gifted assets have special basis rules.
Accurate basis records can save clients from overpaying tax on a sale, since an understated basis inflates the reported gain.