COST BASIS Meaning and
Definition
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Cost basis refers to the original value of an asset, typically a financial investment, which is used to determine the capital gain or loss upon its sale. It represents the price paid for acquiring an asset, including any additional costs such as commissions, fees, or taxes incurred during the purchase. The cost basis acts as a reference point for calculating the taxable gain or loss when an asset is sold.
For example, suppose an individual buys a stock for $100 per share and pays an additional $10 in brokerage fees. The cost basis of their investment would be $110 per share. If they sold the stock later for $150 per share, their capital gain would be $40 per share ($150 - $110), which would be subject to income tax.
The cost basis is essential for tax reporting purposes. When an asset is sold, the investor or taxpayer must report the sale and provide information on the cost basis to calculate the appropriate tax liability. The accuracy of the cost basis is crucial, as it directly impacts the capital gain or loss reported to tax authorities and determines the tax obligations.
In some cases, the cost basis may be adjusted to account for other factors such as stock splits, dividends reinvested, or capital improvements made to property. Additionally, different rules may apply depending on whether the asset is classified as a short-term or long-term investment, which can affect the tax rate applied to the capital gain or loss.
Common Misspellings for COST BASIS
- xost basis
- vost basis
- fost basis
- dost basis
- cist basis
- ckst basis
- clst basis
- cpst basis
- c0st basis
- c9st basis
- coat basis
- cozt basis
- coxt basis
- codt basis
- coet basis
- cowt basis
- cosr basis
- cosf basis
- cosg basis
- cosy basis
Etymology of COST BASIS
The term "cost basis" is derived from two separate components: "cost" and "basis".
1. Cost: The word "cost" comes from the Old French word "coste", which means "expense" or "price". It eventually entered Middle English as "cost".
2. Basis: The term "basis" originates from the Latin word "basis", meaning "foundation" or "support". It was borrowed into English from the Latin word around the 16th century.
Combining these two components, "cost basis" refers to the original price or value of an asset, often used in the context of investments or taxes. It represents the foundation or starting point for determining profit or loss when selling the asset.
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