◈ GLOSSARY · INVESTING
Cost Basis.
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
Cost basis is what you paid for an investment, including commissions and adjusted for things like reinvested dividends and stock splits. When you sell, your capital gain or loss is the sale price minus the cost basis. Keeping accurate cost basis matters — overstate it and you overpay tax; understate it and the IRS may come asking later.
◈ IN PRACTICE
Example
You buy 100 shares at $50 ($5,000 basis). Over the years you reinvest $400 in dividends — each reinvestment adds to your basis, bringing it to $5,400. You sell all 100 shares for $9,000. Your taxable gain is $3,600, not $4,000.
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