The cost basis of an asset is the original price that a person paid for it. It’s used to calculate the profit a person makes when they sell the asset.
Are cost basis and purchase price the same thing?
In large part, they’re the same. There are a few small differences, though. For stocks or funds, cost basis may also include the trade commission. Since profit is the difference between sales price and cost basis, this can result in a lower tax bill for your sale.
Does the cost basis change if I’ve inherited an asset?
Yes. When someone inherits an asset, often a stock or fund, the cost basis shifts to the value the asset had on the date its previous holder (the “decedent”) died. In most cases, this significantly reduces the capital gains tax due when the person inheriting the asset later sells it. This provision is called a “step-up in basis.”