Cost basis
Tax basis · BasisCost basis is what an asset cost for tax purposes: the amount paid for it, plus any part of its value that has already been taxed as income. A sale is taxed on the difference between the price received and the basis, so the basis decides how much of a sale counts as gain.
What is cost basis?
For a bought share, the basis is the price paid, commissions included. A holding is a set of lots, one per purchase, each with its own basis and date; when part is sold, the oldest lots go first unless specific shares are identified.
For shares from equity compensation, the basis is not the amount paid. RSU shares cost nothing, and their basis is the vest-date value, because that value was taxed as wages. NSO shares take the strike plus the spread taxed at exercise, which is the fair market value that day. ESPP shares start at the purchase price, and the basis rises by any ordinary income the sale later produces.
ISO shares carry two bases. For the regular tax the basis is the strike, since the exercise was not income. For the alternative minimum tax, where the spread was counted, it is the fair market value at exercise. The same sale can show two different gains.
How cost basis works, with numbers
100 RSU shares vest at $40, so $4,000 is taxed as wages that year and the shares take a basis of $40 each. Eighteen months later they are sold at $55.
The proceeds are $5,500 and the basis is $4,000, so the capital gain is $1,500, long-term because the shares were held more than a year from vest. Without the basis, the whole $5,500 would read as gain and the $4,000 would be taxed twice.
- Sale, 100 sh × $55
- $5,500
- Basis, 100 sh × $40
- − $4,000
- Capital gain, long-term
- $1,500
Why cost basis matters
The basis is what stands between the sale price and the taxable gain. For compensation shares it is the record of what has already been taxed.
Because the basis and the date live on the lot, each lot has its own gain and its own term, and which lot a sale comes from sets the tax on it.
The lot's date starts the holding period: purchase for bought shares, delivery for RSU shares, exercise for option shares. More than a year from it is long-term.
Cost basis in Taiga Finance
In Taiga Finance a holding's drawer in Investments shows its Cost basis and a Lots table: each purchase with Acquired, Shares, Value, Gain $ and Term, LT or ST. The basis is editable on a holding entered by hand and read-only on a synced or imported one.
In Equity Comp, a logged exercise records the price paid per share and the FMV that day, so an exercised lot carries both, and a sale from it in the grant's drawer prices the ordinary and capital parts from them (“ord $2,520 · ST gain $2,400”). The holdings export is a CSV of current holdings with cost basis.
Investments, in the help center →Key takeaways: Cost basis
- Cost basis is the amount paid plus any value already taxed as income. Gain is the sale price minus the basis.
- RSU shares take the vest-day value as basis; NSO shares take the exercise-day value; ESPP shares start at the purchase price.
- ISO shares have one basis for the regular tax and another for the AMT.
- Basis and holding period live on the lot, so each lot has its own gain and its own term.
Questions about Cost basis
What is cost basis?
The cost of an asset for tax purposes: the price paid plus any of its value already taxed as income. The taxable gain or loss on a sale is the sale price minus the basis.
How is cost basis figured for exercised options?
For an NSO, the basis is the fair market value on the exercise date: the strike paid plus the spread taxed as income. For an ISO, the regular-tax basis is the strike and the AMT basis is the exercise-day value. A disqualifying sale of ISO shares adds the ordinary income it produces to the basis.
Does Taiga Finance track cost basis?
Yes. A holding's drawer shows its cost basis and a lot table with each purchase's date, shares, value, gain and term. A logged exercise records the price paid and the FMV that day, and shares with no recorded purchase read as unknown basis.
What is the cost basis of RSU shares?
The share price on the vest date. That value was taxed as wages when the units vested, so a later sale is a capital gain or loss only on the movement since.