Cost Basis for Securities Transactions
When you sell a security, you will need to know your cost basis to determine whether you have to pay a capital gains tax or can take a capital loss. The cost basis is typically the original purchase price of a security. Depending on how you acquire a security, there may be different ways to determine the cost basis. For example, if you inherit a security, your cost basis is the value of the security at the time of the donor's death.
Calculating the cost basis of a mutual fund that reinvests dividends or of a stock you own through a dividend reinvestment plan can be complicated if you haven't kept good records. Your broker, the mutual fund, or the company may be able to help you reconstruct your records.
For more information about cost basis, please visit the website of the Internal Revenue Service, where you can read Publication 550, Investment Income and Expenses.