People can figure out the cost basis of an investment by using its original value and adjusting for stock splits, dividend and capital distributions, notes Investopedia. The cost basis is calculated using a dollar figure or using the adjusted price per share paid for an investment.Continue Reading
Cost basis for investments is used to determine capital gains and losses for tax purposes, states Investopedia. People who receive shares in a company as a gift must use the cost basis of the original buyer, unless the shares are trading at a lower cost, in which case the lower price is the cost basis. The cost basis for inherited shares is the market price of the shares on the date the original owner died. When people sell off less than their total shares in a company, the IRS requires that if the exact shares sold cannot be established, taxpayers must consider the first shares purchased as sold.
Financial firms are required to provide the IRS and investors with Form 1099-B, which details cost basis, whether shares are subject to reporting, acquisition date and disallowed losses for covered investments, notes D.A. Davidson. Not all investments are covered by this reporting requirement, so investors who need cost basis information for stocks purchased prior to mandatory reporting periods must research their cost basis themselves. If a taxpayer is at all unclear about the cost basis of an investment for tax purposes, he should consult a professional, advises Investopedia.Learn more about Investing