Cost Basis
What you paid, used to compute gain or loss on sale.
What is Cost Basis?
Purchase price plus commissions, adjusted for reinvested dividends, splits, and return of capital. Failing to add reinvested dividends to basis is a classic way investors overpay tax on the same money twice.
Cost Basis: a worked example
$10,000 invested plus $1,500 of reinvested dividends gives a $11,500 basis.
More terms in Taxes & Account Types
Capital Gain (Short-Term vs. Long-Term)
Profit on a sale, taxed by how long you held it.
Wash Sale Rule
A loss is disallowed if you rebuy the same security within 30 days.
Tax-Loss Harvesting
Realizing losses to offset gains and up to $3,000 of ordinary income.
Qualified Dividend
A dividend taxed at long-term capital gains rates.
Traditional IRA / 401(k)
Deduct now, grow tax-deferred, pay ordinary income tax on withdrawal.
Roth IRA / Roth 401(k)
Pay tax now, grow tax-free, qualified withdrawals are untaxed.
Required Minimum Distribution (RMD)
Mandatory annual withdrawals from tax-deferred accounts starting at 73.
Step-Up in Basis
Inherited assets reset to market value at the date of death.