Cost Basis

tax

Also known as: basis, tax basis, cost basis

Updated May 11, 2026 · Written and reviewed by Konstantin Iakovlev

Detailed explanation

Basis matters most for capital-gains tax. Original basis = purchase price + commissions + closing costs. Adjusted basis adds capital improvements (new roof, addition) and subtracts depreciation taken (for rental property). Inherited assets receive a "step-up in basis" to fair market value at death (IRC §1014) — heirs only owe tax on appreciation AFTER they inherit. Gifts use "carryover basis" — recipient inherits the donor's original basis. Tracking basis is essential for stocks, mutual funds (use specific lot identification or FIFO), real estate, and crypto.

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