Cost Basis Law and Legal Definition

Cost basis of property generally refers to its actual cost at the time of its acquisition. Adjusted basis is the cost basis with adjustments made for additional amounts spent above the original cost. The adjusted basis is used to calculate gain or loss on the sale of that property.

When you sell a security, you will need to know your cost basis to determine whether you have to pay a capital gains tax or can take a capital loss. The cost basis is typically the original purchase price of a security. Depending on how you acquire a security, there may be different ways to determine the cost basis. For example, if you inherit a security, your cost basis is the value of the security at the time of the donor's death.