The cost basis of any investment is the original value of an asset adjusted for stock splits, dividends and capital distributions. It is used to calculate the capital gain or loss on an investment for tax purposes.

At the most basic level, the cost basis of an investment is just the total amount invested into the company plus any commissions involved in the purchase.

This can either be described in terms of the dollar amount of the investment, or the effective per share price that you paid for the investment. The calculation of cost basis can be complicated, however, due to the many changes that will occur in the financial markets such as splits and takeovers. In this case, you will need to know your cost basis to calculate the tax amount for which you are liable.

For further reading, see A Long-Term Mindset Meets Dreaded Capital Gains Tax and Tax Tips For The Individual Investor. If the company splits its shares, this will affect your cost basis per share. Remember, however, that while a split changes an investor's number of shares outstanding, it is a cosmetic change that affects neither the actual value of the original investment, nor the current investment.

Continuing with the above example, imagine that the company issued a 2: You can calculate you cost basis per share in two ways: For more insight, check out Understanding Stock Splits. There are several issues that come up when numerous investments have been made.

The Internal Revenue Service IRS says that if you can identify the shares that have been sold, then their cost basis can be used. This is not always easy to do, so if you can't make this identification, the IRS says you need to use a first in, first out FIFO method.

In the event that the shares were given to you as a gift, your cost basis is the cost basis of the original holder, or the person who gave you the gift. If the shares are trading at a lower price than when the shares were gifted, the lower rate is the cost basis. If the shares were given to you as inheritance, the cost basis of the shares for the inheritor is the current market price of the shares on the date of the original owner's death.

There are so many different situations that will affect your cost basis and because of its importance with regards to taxes, if you are in a situation in which your true cost basis is unclear, please consult a financial advisor , accountant or tax lawyer.

For more on how to use cost basis, check out Using Tax Lots: A Way To Minimize Taxes. The best way to find out is to review your statement from the investment firm. Starting in tax year , investment firms were required to report the adjusted basis and whether any gain or loss on a sale is classified as short-term or long-term from the sale of "covered securities" on Form B.

The data alone will decide if you qualify for the beneficiary long-term or short-term gains. If you purchased the stock within the last few years, you should be able to find the cost basis by accessing your account at your brokerage firm.

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If you can't find it online, you can call. If you bought the stock many years ago and the company merged or the stock was split, that can be a time-consuming research exercise.

How do I figure out my cost basis on a stock investment? | Investopedia

You can often find historical stock prices online but you won't get the complete picture. If you need additional help, I recommend checking out http: The total cash inflow will be your cost basis.

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Most Helpful Most Recent. Investopedia New York, NY. Free Consultation Was this answer helpful? Swanger, Rose Knoxville, TN. Hello, The best way to find out is to review your statement from the investment firm.

Itkin, Laurie San Diego, CA. Capriotti, Michael Vineland, NJ. Hunter, David Asheville, NC. Investopedia does not provide tax, investment, or financial services.

Cost Basis Calculators

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