Determine the true Cost Basis for your investment. This calculator factors in the original purchase price, the number of shares, and any associated commissions or fees to give you the figure needed for accurate capital gains reporting.
Cost Basis Calculator
Cost Basis Formula
Formula Sources: Investopedia, IRS Tax Topic 703
Variables
The calculation relies on three main variables:
- Purchase Price per Share (P): The actual dollar amount paid for one share of the investment.
- Number of Shares (Q): The total quantity of shares acquired in the transaction.
- Total Commissions/Fees (F): All brokerage fees, sales charges, or other transaction costs incurred when making the purchase.
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What is Cost Basis?
Cost Basis is the original value of an asset for tax purposes. It is essentially the total price paid for an investment, which includes the purchase price plus any commissions, fees, or other costs associated with acquiring the asset. This figure is critical because it is used to determine an investor’s capital gain or loss when the asset is finally sold.
When you sell an investment, the sale proceeds are subtracted from the Cost Basis to determine your taxable gain. If the proceeds are higher than the Cost Basis, you have a capital gain. If the proceeds are lower, you have a capital loss. Therefore, accurately calculating the Cost Basis minimizes your taxable liability and ensures compliance with tax regulations.
How to Calculate Cost Basis (Example)
Follow these steps to manually verify your investment’s cost basis:
- Determine the Share Cost: Multiply the Purchase Price per Share by the Number of Shares acquired. Example: $45.00/share × 200 shares = $9,000.00.
- Identify Fees: Note the total amount of commissions and fees paid for the transaction. Example: $12.50.
- Add Costs: Sum the share cost and the total commissions/fees to find the final Cost Basis. Example: $9,000.00 + $12.50 = $9,012.50.
Frequently Asked Questions (FAQ)
- Q: Why is calculating Cost Basis important?
- A: It’s essential for determining the correct amount of capital gains or losses when you sell an investment, which directly impacts the amount of tax you owe to the IRS (or relevant tax authority).
- Q: Does Cost Basis include brokerage fees?
- A: Yes, generally, any commissions, fees, or transaction costs incurred during the acquisition of the asset are included in the total Cost Basis, effectively reducing the capital gain upon sale.
- Q: What is the difference between Cost Basis and Market Value?
- A: Cost Basis is the historical cost of the asset, including fees. Market Value is the current price at which the asset is trading on the open market. The difference between the two is the current unrealized gain or loss.
- Q: What happens to Cost Basis during a stock split?
- A: In a stock split, the total Cost Basis remains the same, but it is divided over the new, larger number of shares. This reduces the Cost Basis per share.