how to figure stock cost basis guide

How to Figure Stock Cost Basis

How to figure stock cost basis is an essential skill for investors and tax filers. In simple terms, learning how to figure stock cost basis tells you the original price (plus allowable adjustments) you paid for shares so you can compute capital gain or loss when you sell. This article walks beginners through definitions, common methods, adjustments for corporate actions, special cases like gifts and inheritances, step-by-step gain calculations, broker reporting, examples, tools, and recordkeeping best practices.

As you read, you will learn practical ways to track basis, choose lot-identification methods, avoid common mistakes, and where Bitget and Bitget Wallet can help with custody and record clarity for tokenized-equity or crypto-adjacent workflows.

Definition and basic concept

How to figure stock cost basis begins with a clear definition. Cost basis is the original value of an asset for tax purposes, typically the purchase price plus acquisition costs such as commissions and fees. When you sell, taxable gain or loss equals proceeds from the sale minus your adjusted cost basis.

Example (single lot):

• Buy 100 shares at $20.00 per share = $2,000 purchase price.
• Commission paid at purchase = $10.
• Cost basis = $2,010.
• Sell 100 shares at $35.00 per share = $3,500 proceeds minus $10 selling commission = $3,490 net proceeds.
• Taxable gain = $3,490 − $2,010 = $1,480.

This simple calculation is the core of how to figure stock cost basis. Real-world situations add complexity when you hold multiple lots, reinvest distributions, or face corporate events.

Why cost basis matters (tax and investment implications)

How to figure stock cost basis matters because the basis determines the taxable capital gain or loss on disposition. Key implications:

• Tax amount depends on gain and whether it is short-term (held one year or less) or long-term (more than one year), which affects tax rates.
• Accurate basis prevents overpayment of tax and reduces audit risk.
• Reinvested dividends become part of basis; failing to include them can lead to taxation of the same money twice.
• For corporations or investors that issue shares to buy assets, basis on those acquired assets affects future gain/loss when sold.

Keeping precise basis records enables better tax planning, such as harvesting losses or choosing lots to realize long-term gains.

Components of cost basis

When learning how to figure stock cost basis, know what is included and what is not.

Included in basis:

• Purchase price per share multiplied by number of shares.
• Commissions, broker fees, and other acquisition costs that are directly related to the purchase.
• Reinvested dividends and capital gain distributions (each reinvestment creates a new lot with its own basis).
• Costs of improvements for assets other than securities (not common for stock but relevant to other property).

Excluded from basis (but affect proceeds or tax treatment):

• Selling commissions and transaction fees — these reduce proceeds, not increase basis.
• Return of capital distributions — these generally reduce basis rather than being immediately taxed.
• Holding costs, margin interest, or general account fees (unless deductible under other rules).

Understanding these components is a required step in how to figure stock cost basis accurately.

Common cost-basis methods (and when they apply)

The IRS accepts several lot-identification methods. Brokers may offer defaults; investors can often elect alternatives. Choosing a method affects taxable outcomes.

First-in, first-out (FIFO)

FIFO assumes the oldest shares you purchased are sold first. It is the default method at many brokerages when no special identification is made. FIFO often realizes larger gains in rising markets because older lots tend to have lower cost basis.

Example use: If you bought shares in 2018 and again in 2024, FIFO sells 2018 shares first unless you specify otherwise.

Specific identification (Spec ID)

Specific identification allows investors to specify which lot(s) are sold when making a trade. Proper documentation is required — you must identify lots before the sale settles, and brokers must be able to match the sale to the chosen lots. Spec ID is a powerful tax-planning tool, enabling you to sell lots with higher basis to minimize gains or to select older lots for long-term treatment.

Best practice: Instruct your broker via their lot-selection tool and keep confirmations. Using Bitget custody tools or Bitget Wallet combined with exported trade confirmations can help maintain precise records.

Average cost

Average cost pools all lots to compute a single per-share basis. This method is commonly available for mutual funds and certain ETFs. Average cost simplifies recordkeeping because every sale uses the pooled per-share cost, but it removes the ability to choose specific lots to optimize taxes.

Calculation: Total cost of all shares divided by total number of shares = average per-share cost.

Last-in, first-out (LIFO) / Highest-in, lowest-in and broker defaults

Some methods such as LIFO are less common and may not be permitted for all asset types. Broker defaults vary; many brokers use FIFO by default for unconstrained sales and may apply average cost for mutual funds. Always review your broker's default and change it if you want a different method.

How to figure stock cost basis in practice often requires reviewing and, where permitted, changing your broker's default method to fit your tax goals.

Adjusted cost basis and corporate actions

Corporate actions change the number or type of shares you hold and therefore require adjustments to basis. The principle is to preserve the total basis across the new holdings unless rules state otherwise.

Stock splits and reverse splits

Splits adjust the per-share basis proportionally. Example: A 2-for-1 split doubles shares and halves per-share basis; total basis remains unchanged.

Dividends and reinvested distributions (DRIPs)

Reinvested dividends create new lots with basis equal to the amount reinvested (the price at which new shares were acquired). Include these amounts when calculating your total basis; brokers will generally report reinvestment as purchases.

Return of capital distributions

A distribution labeled as a return of capital reduces the shareholder's cost basis by the distribution amount. If the distribution exceeds remaining basis, the excess is treated as gain.

Mergers, spin‑offs, and tender offers

Mergers and spin-offs require allocation of original basis among the new securities based on relative fair market values or IRS-specified allocation formulas. Tender offers may produce special reporting. Follow the corporate notices and IRS guidance to allocate basis correctly.

When corporate actions are complex, consult company filings and brokerage notices to support how you adjusted basis.

Special situations

How to figure stock cost basis for special situations requires attention to distinct IRS rules.

Gifted shares

When you receive shares as a gift, your basis generally carries over from the donor (carryover basis). If the donor’s basis exceeds the fair market value (FMV) at transfer and you later sell at a loss, special rules determine whether the donor’s basis or FMV is used to compute loss.

Key point: For gains, recipient’s basis = donor’s basis. For losses, if FMV at gift date is lower than donor’s basis and you sell at a loss, the FMV may be used for loss calculations.

Inherited shares and step‑up in basis

In most U.S. cases, inherited shares receive a step-up (or step-down) in basis to the FMV at the decedent’s date of death or the alternate valuation date. This often eliminates much of the unrealized gain for estate beneficiaries, changing how to figure stock cost basis for inherited positions.

As of December 29, 2025, according to Strategy’s disclosure, corporate treasury actions (such as large crypto purchases funded by share issuance) can affect company-level reporting and investors’ decisions but do not change the tax basis rules for regular shareholders. For personal inheritance tax rules, follow IRS guidance and estate documents.

Wash sale rule

The wash sale rule disallows a loss deduction if you buy substantially identical securities within 30 days before or after a sale at a loss. Disallowed loss is added to the basis of the repurchased shares, adjusting basis upward.

Practical note: Brokers often flag wash sales on year-end statements, but you remain responsible for tracking wash-sales across multiple accounts and non-broker purchases. Accurate recordkeeping is essential when learning how to figure stock cost basis with wash-sale adjustments.

Exercising options, restricted stock and employee share plans

When you exercise a nonqualified stock option, your cost basis typically includes the exercise price plus any compensation income recognized (for example, bargain element taxed at exercise). For restricted stock units (RSUs), basis generally equals the fair market value at vesting plus amounts withheld for taxes.

For employee stock purchase plans (ESPPs), special rules apply (qualifying vs disqualifying dispositions) that affect basis and wage income reporting.

Bankruptcies, corporate reorganizations and delistings

Bankruptcy-related write-offs, reorganizations, and delistings may change recoverable value and require basis adjustments. In some cases, investors must track worthless securities or file claims; basis documentation supports tax treatments.

Calculating gains and reporting to tax authorities

A compact procedure for how to figure stock cost basis and report gains:

1. Compute adjusted basis: sum of purchase price(s) + acquisition costs + reinvested distributions − returns of capital + basis adjustments from corporate actions.
2. Compute net proceeds: sale price × shares − selling commissions/fees.
3. Gain or loss = net proceeds − adjusted basis.
4. Determine holding period: short-term (≤ 1 year) or long-term (> 1 year).
5. Report transactions on Form 8949 and aggregate on Schedule D for U.S. federal income tax; brokers supply Form 1099-B for most covered securities.

Keep clear documentation for each lot sold so you can match broker-provided 1099-B entries. If broker reporting is incorrect, you must still prepare an accurate Form 8949 and attach explanations where necessary.

Broker reporting and investor responsibilities

Brokers must report cost basis for “covered” securities (acquired after certain dates) on Form 1099-B. However, broker-reported basis may reflect their default method or incomplete corporate-action adjustments.

Investor responsibilities:

• Verify broker-reported basis on Form 1099-B; correct mistakes promptly.
• Choose and communicate lot-selection methods (Spec ID) before settlement where possible.
• Track basis for non-covered securities, transfers, and assets held outside taxable accounts.

If you disagree with broker-provided basis, gather trade confirmations, account statements, and corporate notices and contact the broker to update their records. Retain correspondence as evidence.

When trading or storing tokens and tokenized securities, use Bitget Wallet for custody and export ledgered trade records to unify reporting across asset classes.

Practical examples and worked calculations

Practical, stepwise examples illustrate how to figure stock cost basis in common scenarios.

Example 1 — Single-lot sale

• Purchased 200 shares @ $15.00 = $3,000; purchase commission $15. Basis = $3,015.
• Sold 200 shares @ $25.00 = $5,000; selling commission $15. Net proceeds = $4,985.
• Gain = $4,985 − $3,015 = $1,970.

Example 2 — Multiple-lot sale using FIFO vs Spec ID

• Lot A: 100 shares @ $10 (2019)
• Lot B: 100 shares @ $20 (2023)
• Sell 100 shares @ $30.

Using FIFO: Lot A sold → basis $10 × 100 = $1,000. Proceeds $3,000. Gain = $2,000.

Using Spec ID (choose Lot B): basis $20 × 100 = $2,000. Gain = $1,000.

This shows how lot selection affects tax.

Example 3 — Average cost (mutual fund)

• Buy 50 shares @ $20 = $1,000
• Buy 50 shares @ $25 = $1,250
• Total cost $2,250 for 100 shares → average basis per share = $22.50.
• Sell 40 shares at $30 → proceeds $1,200; basis = 40 × $22.50 = $900; gain = $300.

Example 4 — Reinvested dividends (DRIP)

• Buy 10 shares @ $100 = $1,000.
• Dividend of $20 reinvested buys 0.2 shares at $100. New basis increases by $20 to $1,020.
• Basis per share with 10.2 shares = $100.

Example 5 — Wash-sale adjustment

• Buy 100 shares @ $50 on Jan 1.
• Sell 100 shares at a $10 loss (sale proceeds $4,000) on Jan 20 at $40.
• Buy substantially identical 100 shares on Feb 10 at $45 (within 30 days).
• Disallowed loss of $1,000 is added to basis of repurchased shares: new basis for those 100 shares = $4,500 (purchase $4,500) + $1,000 = $5,500? Correction: initial purchase price $4,500; the disallowed loss $1,000 is added → adjusted basis $5,500; per-share basis $55.

These examples demonstrate how to figure stock cost basis across different scenarios.

Tools, calculators, and recordkeeping best practices

Tools that help you figure stock cost basis accurately:

• Broker cost-basis tools and lot-selection widgets (use Bitget’s custody export features where available).
• Dedicated portfolio tax software that imports 1099-B data and tracks wash-sale across accounts.
• Spreadsheets with clear columns for trade date, settlement date, shares, price, commissions, corporate actions, and adjusted basis.

Recordkeeping tips:

• Save trade confirmations, account statements, dividend reinvestment records, and corporate action notices.
• Keep records for at least three to seven years after filing, longer if items remain relevant to carryover basis or audit exposures.
• Reconcile year-end 1099-B to your own records and resolve discrepancies before filing.

Bitget and Bitget Wallet users can export transaction histories and custody reports to feed into tax tools and simplify how to figure stock cost basis when tokenized assets or cross-asset transactions are involved.

Mutual funds, ETFs and fractional shares — special rules

Mutual funds: Average-cost methods are commonly available and often preferred for mutual funds since these investments frequently involve frequent reinvestments and fractional shares.

ETFs and fractional shares: ETFs typically use lot-level basis methods similar to stocks. Fractional shares acquired through DRIPs or partial purchases must be tracked; many brokers will report basis for fractional shares, but you should retain reinvestment records.

Fractional ownership complicates how to figure stock cost basis because many small purchases create many micro-lots; average-cost or pooled accounting can simplify recordkeeping but may limit tax optimization.

Cost basis considerations for cryptocurrencies

Although this guide focuses on U.S. equities, how to figure stock cost basis principles carry over by analogy to cryptocurrencies (in the U.S., crypto is treated as property). Key differences:

• Broker-like reporting is less consistent for crypto; many exchanges do not furnish Form 1099-B for U.S. taxpayers.
• Accepted lot methods such as FIFO and Spec ID can apply, but you must be able to document lot identification and holdings.
• Specialized crypto cost-basis tracking tools are common; use Bitget Wallet for custody and exportable transaction histories to support tax reporting.

Because reporting varies, investors should keep comprehensive blockchain and exchange records and use reliable tools to reconcile trades, forks, and airdrops when learning how to figure stock cost basis equivalents for crypto.

Tax planning strategies that involve basis management

How to figure stock cost basis well enables several planning strategies:

• Specific ID to sell high‑basis lots and minimize taxable gain or to harvest losses for offset against gains.
• Timing sales to achieve long-term holding status for preferential tax rates.
• Managing reinvested distributions and wash-sale windows to retain loss deductions.

Note: Strategy-level corporate actions — such as companies that issue shares to buy assets — can alter investor perceptions and require careful reading of company filings. As of December 29, 2025, Strategy disclosed a significant treasury purchase that underscores why investors watch corporate allocation actions closely; such moves do not alter personal basis rules but may affect market pricing and investor tax decisions.

No part of this section is investment advice; it only describes tax-planning concepts for informational purposes.

Common mistakes, pitfalls, and audit triggers

Frequent errors when trying to figure stock cost basis include:

• Ignoring reinvested dividends and treating distributions as income without adding them to basis when appropriate.
• Misapplying wash-sale rules or failing to account for wash sales across multiple accounts.
• Failing to adjust basis for stock splits, reverse splits, spin-offs, and reorganizations.
• Accepting broker-reported basis without verification.
• Poor documentation for gifted or inherited shares.

To lower audit risk: use a consistent method, reconcile broker 1099-B with personal records, and retain supporting documents for each transaction.

International and jurisdictional differences

How to figure stock cost basis differs by country. Examples of variation:

• Step-up rules on death vary; some jurisdictions do not grant full step-up in basis.
• Reporting forms and acceptable lot-identification methods differ.
• Capital gain tax rates and holding-period distinctions are jurisdiction-specific.

If you are outside the United States or hold cross-border assets, consult local tax authorities or qualified tax professionals to determine how to figure stock cost basis under local law.

Frequently asked questions (FAQ)

Q: What records do I need to figure cost basis? A: Trade confirmations, monthly/annual account statements, dividend and DRIP records, corporate action notices, Form 1099-B, and any transfer documentation.

Q: Can I change my cost-basis method? A: Some methods can be changed prospectively; others require IRS notification or are limited by broker policy. For mutual funds, average cost elections are often available but may have requirements.

Q: What if cost basis is unknown? A: If basis cannot be documented, use reasonable methods and be prepared to explain your approach to tax authorities; for securities with undocumented basis, basis may be treated as zero in some cases, increasing taxes owed.

Q: How long should I keep records? A: Generally keep records at least for three to seven years; keep basis records as long as you hold the investment plus the statute of limitations period after sale.

Further reading and authoritative sources

For deeper guidance and official instructions on how to figure stock cost basis, consult primary sources and broker resources. Key references include IRS publications and broker help pages, as well as educational materials from recognized investor education organizations.

References

• Investopedia — Understanding Cost Basis
• FINRA — Cost Basis Basics
• Fidelity — Cost Basis Help
• Vanguard — Cost Basis for Taxes
• Charles Schwab — Save on Taxes: Know Your Cost Basis
• NerdWallet — Cost Basis: What It Is, How to Calculate It
• SmartAsset — What Is Cost Basis and How Is It Calculated?
• Bankrate — How Do You Calculate Cost Basis on Investments?
• American Century — Cost Basis Guide
• Corporate shareholder guides and broker documentation

Note: the above list names authoritative sources used to prepare this guide. Consult the original publications and your broker for mechanics specific to your account.

Timely note on corporate treasury activity (reported data)

As of December 29, 2025, according to Strategy’s public disclosure and media reports, Strategy announced it added 1,229 BTC in late December for approximately $108.8 million at an average price near $88,568 per Bitcoin. The company reported cumulative Bitcoin holdings of roughly 672,497 BTC acquired for about $50.44 billion, implying an average corporate cost basis close to $74,997 per Bitcoin. Strategy reported a BTC Yield of 23.2% YTD 2025. These figures are corporate-level metrics reported by Strategy and are included here for context about institutional activity; they do not change how to figure stock cost basis for individual investors.

Final notes and next steps

Mastering how to figure stock cost basis reduces tax surprises and improves financial clarity. Start by reconciling your year-end 1099-B to your own records, selecting lot-identification rules that fit your tax planning, and maintaining clean documentation for dividends, DRIPs, gifts, and inheritances. Use broker tools and Bitget Wallet exports to centralize transaction histories. For complex corporate actions or estate scenarios, seek qualified tax advice.

Explore Bitget custody and Bitget Wallet features to simplify transaction exports and support accurate tax reporting. For help reconciling broker statements or choosing lot methods, consider professional tax assistance.

Want to streamline tax reporting? Export your account history from your custody provider and use a cost-basis tool to reconcile Form 1099-B line-by-line. Discover Bitget features to help you get started.