Investing
What is Cost basis?
Cost basis is the original value of an asset for tax purposes — normally what was paid, adjusted for events such as splits, returns of capital and reinvested dividends. Gain or loss on disposal is the proceeds minus the basis.
Where the same security has been bought at several prices, which lot is considered sold determines the taxable result. Methods such as first-in-first-out or specific identification produce different outcomes from identical trades, and the method must be applied consistently rather than chosen afterwards.
This is the reason a double-entry lot ledger is worth the complexity: an aggregate average price cannot answer which lot was sold, so it cannot produce a defensible figure once a position has been built over time.
Related
Definitions are educational and general. Nothing here is financial, legal or tax advice, and regulatory descriptions summarise frameworks that change — check the current rules for your jurisdiction before relying on them.