What Is Cost Basis?
Cost basis is what an investment cost you for tax purposes, usually the purchase price plus costs. Why it decides your taxable gain or loss, and how it works with several purchases.
In one sentence
Cost basis. What you paid for an investment, including costs such as commissions. Your gain or loss when you sell is the sale proceeds minus the basis.
How it works
For stocks and bonds you buy, basis is the purchase price plus costs such as commissions and transfer fees.1 When you sell, the difference between what you receive and your basis is your capital gain or loss. Investments you didn't buy follow different rules: inherited investments generally take their value on the date of the owner's death as their basis, while a gift generally keeps the giver's basis.2
| Shares | Cost | |
|---|---|---|
| January purchase | 50 at $40 | $2,000 |
| June purchase | 50 at $60 | $3,000 |
| You sell 50 at $70: if the January shares are sold | Basis $2,000 | Gain $1,500 |
| If the June shares are sold | Basis $3,000 | Gain $500 |
Same sale, different tax, depending on which shares count as sold. Brokers let you choose a method, and for most stocks bought since 2011 and fund shares bought since 2012 they must report your basis to the IRS on Form 1099-B when you sell.3
Learn it properly
- Realized Gains, Unrealized Gains, and Cost BasisPart 6: Strategy, Behavior, Accounts, and Taxes · Free
Notes and sources
- Internal Revenue Service. Topic no. 703, Basis of assets. Checked 2026-10-06. Back to text
- Internal Revenue Service. Publication 551, Basis of Assets. Checked 2026-10-06. Back to text
- Internal Revenue Service. Instructions for Form 1099-B (2026). Checked 2026-10-06. Back to text