If you've sold assets, made investments, have mutual funds, stocks, or received an inheritence, you'll need to figure out your tax basis when filing your income tax return. Tax basis is also commonly known as cost basis, depending on whom you're dealing with. They are often used interchangeably to mean the same thing.
It can be complex because it matters how you came to own the shares or mutual funds. Your tax basis is determined by the amount you use from the investment that is for profit or loss when you decide to sell. Accuracy is key, because you'll pay less taxes if your basis is higher.
Stock and Property Inheritance
If you inherited stocks or property, the value is based on the death of person who left you the inheritance. The good news here is that …show more content…
For simplicity, assume you purchased $5,000 investment in stocks and $50 commissions. Your tax basis would be $5,050. Many times, if you choose to keep the stocks and the price increases, you'll have to pay captial gains tax on the increase. So if the $5,000 increased to $6,500, the capital gains tax would apply to $1,500.
Step-Up in Tax Basis
The step-up basis is when the math can become a little complicated. This process involves figuring out the value of the stocks or inherited properties. Stocks that are publicly traded are much easier to find historical records in terms of prices. However, some items should have a set price value when it is inherited. This is normally not a problem with large estates with a professional executor, but if the value was not set, it can become quite confusing.
Stock Splits
If you own shares in a company and it splits, your tax basis in the stock is split between new and old shares. In this situation, you need to know all the details of the stock splits in order to fully determine your basis for tax purposes.
Keeping Good
It can be complex because it matters how you came to own the shares or mutual funds. Your tax basis is determined by the amount you use from the investment that is for profit or loss when you decide to sell. Accuracy is key, because you'll pay less taxes if your basis is higher.
Stock and Property Inheritance
If you inherited stocks or property, the value is based on the death of person who left you the inheritance. The good news here is that …show more content…
For simplicity, assume you purchased $5,000 investment in stocks and $50 commissions. Your tax basis would be $5,050. Many times, if you choose to keep the stocks and the price increases, you'll have to pay captial gains tax on the increase. So if the $5,000 increased to $6,500, the capital gains tax would apply to $1,500.
Step-Up in Tax Basis
The step-up basis is when the math can become a little complicated. This process involves figuring out the value of the stocks or inherited properties. Stocks that are publicly traded are much easier to find historical records in terms of prices. However, some items should have a set price value when it is inherited. This is normally not a problem with large estates with a professional executor, but if the value was not set, it can become quite confusing.
Stock Splits
If you own shares in a company and it splits, your tax basis in the stock is split between new and old shares. In this situation, you need to know all the details of the stock splits in order to fully determine your basis for tax purposes.
Keeping Good