Definition
What you paid for an investment or property, plus certain costs, used to figure your gain or loss when you sell.
What it means
Cost basis is usually the purchase price plus costs such as commissions. For a home, it includes certain closing costs and the cost of improvements, but not repairs. Reinvested dividends add to the basis of fund shares, which keeps you from paying tax twice on the same money. Inherited assets usually get a basis equal to the fair market value on the date of death, while gifts usually keep the giver's basis. Brokers report basis for most securities bought in recent years on Form 1099-B, and digital asset brokers began reporting gross proceeds on Form 1099-DA for 2025 sales. If you sell shares bought at different times, the method used, such as first in first out or specific shares, affects your gain. Keeping purchase records helps you avoid overpaying tax.
Example
You bought 100 shares for $2,000 plus a $10 fee and later reinvested $150 of dividends. Your basis is $2,160, so selling for $3,000 gives a $840 gain, not $1,000.
Illustrative numbers only. Your situation will differ.