Cost Basis
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Definition of 'Cost Basis'1. 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. Also known as "tax basis".2. The difference between the cash price and the futures price of a given commodity. |
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Investopedia explains 'Cost Basis'1. Using the correct tax basis is important especially if you reinvested dividends and capital gains distributions instead of taking the earnings in cash. Reinvesting distributions increases the tax basis of your investment, which you must account for in order to report a lower capital gain (and therefore pay less tax). If you don't use the higher tax basis, you could end up paying taxes twice on the reinvested distributions.For example, say you bought 100 shares of a stock for $1,000 last year and you reinvested the $100 of dividends distributed from the company. The next year, you received $200 in dividends and capital-gains distributions, which you again reinvested. Since tax law considers these reinvested earnings as paid to you even though you didn't actually have the cash in hand, your adjusted cost basis when the stock is sold should be recorded at $1,300 instead of the original purchase price of $1,000. Thus, if the sale price is $1,500, the taxable gain would only be $200 ($1,500 - $1,300) instead of $500 ($1,500 - $1,000). If you record the cost basis as $1,000, you'll end up paying more taxes than you have to. 2. For example, if particular corn futures contract happens to be trading at $3.50, while the current market price of the commodity today is $3.10, there is said to be a $0.40 basis. |
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My recently deceased spouse's IRA has been rolled over into mine. Does the cost basis change for me?
The basis attributed to IRA assets that you inherited remains the same. Since you are a spouse beneficiary and you elect to treat the assets as your own by transferring them to your own IRA, ... -
I converted a Traditional IRA to a Roth. The conversion was a stock equity with a cost basis of $19,000 in the Traditional IRA. The day of conversion, the value was $34,000. Which amount should the brokerage house use for the 1099-R?
Assets in IRAs do not carry a cost basis for tax purposes. Therefore, distributions and Roth conversions are taxed at the value of the assets based on their value at the close of business on ... -
How do I figure out my cost basis on a stock investment?
The cost basis of any investment is the original value of an asset adjusted for stock splits, dividends and capital distributions. It is used to calculate the capital gain or loss on an investment ... -
How do you calculate the cost basis for a mutual fund over an extended time period?
Investors must pay taxes on any investment gains they realize. Subsequently, any capital gain realized by an investor over the course of a year must be identified when they file their income ...
