1. What is Cost Basis?

Cost Basis is the original value of an asset for tax purposes, usually the purchase price plus any additional costs incurred to acquire the asset. It's used to determine capital gains or losses when the asset is sold.

2. How Does the Calculator Work?

The calculator uses the Cost Basis formula:

Where:

• \( \text{Purchase Price} \) — The original price paid for the asset
• \( \text{Commissions} \) — Brokerage or transaction fees
• \( \text{Adjustments} \) — Any other costs that increase basis (legal fees, improvements, etc.)

Explanation: The formula accounts for all costs associated with acquiring an asset to establish its true cost for tax purposes.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains taxes, tracking investment performance, and estate planning.

4. Using the Calculator

Tips: Enter all amounts in USD. Include all acquisition costs to get an accurate cost basis. Keep records of all inputs for tax purposes.

5. Frequently Asked Questions (FAQ)

Q1: What's included in adjustments?
A: Adjustments can include legal fees, recording fees, transfer taxes, and any improvements that add value to the property.

Q2: How does cost basis affect taxes?
A: Higher cost basis means lower capital gains when you sell, resulting in lower taxes. Accurate basis helps minimize tax liability.

Q3: Is cost basis the same for all assets?
A: While the basic principle is the same, specific rules apply to different assets (stocks, real estate, inherited property, etc.).

Q4: What if I don't know my original purchase price?
A: For stocks, check with your broker. For real estate, consult closing documents. The IRS may accept reasonable estimates if documentation is lost.

Q5: Does cost basis ever change?
A: Yes, basis can increase with improvements or decrease with depreciation or casualty losses. Some events like stock splits also adjust basis.