Cost basis

The amount treated as paid for an asset when working out a taxable gain. A low one, typical of a long-held concentrated position, means a large tax bill on sale.

Where you will meet it

Cost basis appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain how tax-efficient different asset classes tend to be and propose tax-management techniques for allocating assets
  CFA Level III · Private Wealth Pathway

  “Harvesting a 50,000 loss at a 25% rate saves 12,500 now, but lowers the cost basis, so much of the benefit is deferral unless future rates differ.”

• Explain and propose planning for passing wealth to others by lifetime gifts
  CFA Level III · Private Wealth Pathway

  “Against this, the giver loses control and must retain enough for their own needs, and in some systems a gift carries over the original cost basis whereas assets passing at death may get a reset basis.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary