What is Cost Basis?
Cost basis is the total amount you paid to acquire an investment, including the purchase price plus any transaction fees. If you buy 100 shares at $50 with a $10 commission, your cost basis is $5,010. When you sell, your taxable gain or loss equals the sale proceeds minus the cost basis. Accurate cost basis tracking is essential for correct tax reporting.
Multiple Purchase Calculations
When you buy the same stock at different prices over time, cost basis methods determine which shares are considered sold. Average cost method divides total cost by total shares. FIFO (first in, first out) assumes the oldest shares are sold first. Specific identification lets you choose which shares to sell, enabling tax optimization. In Japan, the moving average method is standard for taxable accounts, while brokerages handle calculations automatically in specified accounts.
Special Situations
When investments transfer from tax-exempt accounts (like NISA) to taxable accounts, the cost basis resets to the market value at transfer. If the investment appreciated during the tax-exempt period, that gain is permanently tax-free. But if it declined, the higher transfer-date basis means you cannot claim the loss for tax purposes. Understanding cost basis rules is critical for NISA exit planning and tax-loss harvesting strategies.