Cost basis is a measure of the amount of the original investment in a stock or other asset. It is often used to calculate capital gain or loss, especially for tax purposes. The gain or loss is the price which the asset was sold at minus the cost basis. This article will tell you how to calculate cost basis for any asset, whether it be a stock, bond, or something tangible like real estate.
Look up your financial records for the asset whose cost basis you want to calculate.
Determine the initial amount of money invested. For example, if you invested $1000 for Stock XYZ, the cost basis is $1000. If you bought a house for $250,000, then the cost basis for the house is $250,000.
Cost basis can also be measured per share. If you bought 100 shares of Stock XYZ for $1000, then the cost basis per share is $10.
Calculating cost basis for stocks can be more difficult to calculate if you invested in the same stock multiple times at different prices. The best way to calculate cost basis in this case is to apply the simple formula for of FIFO (first in first out). This means that if you bought the original 100 shares at $10 and another 100 shares at $15, then the cost basis for selling the first 100 shares is $10 per share but after that, the cost basis is $15 per share.
Now that you have a cost basis for your asset, what do you do with it? Cost basis is usually used to determine capital gains (or losses). To calculate capital gain, subtract the cost basis from the asset sales price. For example, if you sell 100 shares of XYZ for $1500 and want to calculate the capital gains, subtract the cost basis ($1000) to get a capital gain of $500. When filing for taxes, this is the number you will have to put on your IRS schedule D.
If using a brokerage, cost basis for your investments is usually calculated automatically and sent to you at the end of every year. If assets are acquired by gift, inheritance, or trust, then cost basis typically retains the original owner's basis. It is important to keep track of all records.