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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Cost Basis

Definition:

What did it cost ya? The cost basis is the full price you paid for an investment that later made you moolah.

Who cares as long as you made money, right? Not so. It matters because of the taxman who cometh.

Example 

You bought 1,000 shares of IBM at $100 ($100,000 in total) and sold it 2 years later at $140 net of commissions ($140,000 total). Great job. You made 40 grand. You get taxed on said 40 grand. But you wouldn't know it's 40 grand if you didn't know your cost basis of 100 grand. You laid out $100/share for 1,000 shares. Even without the fancy calculus, that works out to a cost basis of $100,000.