Cost Basis
The original purchase price of an investment (plus any reinvested dividends or commissions) used to calculate capital gains or losses on sale. Capital gain = sale price − cost basis. Multiple lots of the same security can have different cost bases; tax software uses methods like FIFO (first-in-first-out), LIFO, or specific-identification to choose which lots are sold for tax-optimization. Behavioral note: cost basis is irrelevant to whether a position is a good FORWARD investment — only relevant for tax accounting.
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Related terms
Adjusted Cost Basis · Annuity · Capital Gains Distribution · Capitalized Interest · Dividend Discount Model (DDM) · Dollar-Cost Averaging
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