How To Calculate Cost Basis On Stock

Cost Basis Formula:

\[ \text{Cost Basis} = \frac{\text{Total Purchase Cost} + \text{Fees}}{\text{Shares}} \]

Cost Basis ($/share):

Total Cost ($):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What Is Cost Basis?

Cost basis represents the original value of an asset for tax purposes, typically the purchase price adjusted for stock splits, dividends, and return of capital distributions. It is used to calculate capital gains or losses when the asset is sold.

2. How Does The Calculator Work?

The calculator uses the cost basis formula:

\[ \text{Cost Basis} = \frac{\text{Total Purchase Cost} + \text{Fees}}{\text{Shares}} \]

Where:

$ \text{Total Purchase Cost} $ — Total amount paid for the shares ($)
$ \text{Fees} $ — Brokerage fees, commissions, and other transaction costs ($)
$ \text{Shares} $ — Number of shares purchased

Explanation: This formula calculates the average cost per share, which is essential for determining taxable gains or losses when selling shares.

3. Importance Of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for tax reporting, investment analysis, and portfolio management. It helps investors understand their true profit or loss and comply with tax regulations.

4. Using The Calculator

Tips: Enter the total purchase cost in dollars, any associated fees in dollars, and the number of shares purchased. All values must be positive, with shares greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: Why is cost basis important for investors?
A: Cost basis determines the taxable gain or loss when selling investments and helps track investment performance accurately.

Q2: What costs are included in cost basis?
A: Purchase price, brokerage commissions, transfer fees, and other direct acquisition costs. Reinvested dividends also increase cost basis.

Q3: How does cost basis affect taxes?
A: Lower cost basis means higher capital gains when selling, resulting in more taxes. Higher cost basis reduces taxable gains.

Q4: What are the different cost basis methods?
A: FIFO (First-In-First-Out), LIFO (Last-In-First-Out), specific identification, and average cost are common methods for calculating cost basis.

Q5: How do stock splits affect cost basis?
A: Stock splits adjust the cost basis per share. For example, in a 2-for-1 split, the cost basis per share is halved while the number of shares doubles.