Cost Basis

Cost basis is what you paid for an investment, including commissions, adjusted for events like splits, return-of-capital distributions, reinvested dividends, and wash sales. It is the number your gain or loss is measured against when you sell.

When you own multiple lots bought at different prices, the accounting method decides which basis applies. Brokers default to FIFO (first in, first out), but specific identification lets you pick the exact lot at sale time, and mutual funds allow average cost. Lot selection is a live tax decision: selling your highest-basis lot minimizes this year's gain, selling the oldest lot may convert a short-term gain into a long-term one.