Definition
What you originally paid for an investment, including reinvested dividends. Sale price minus cost basis is your taxable capital gain or loss.
Why it matters
Basis is the difference between taxing your profit and taxing your whole sale. Tracking it (especially reinvested dividends) keeps you from paying tax twice on the same dollars.
Example
An investor buys a fund for $5,000 and reinvests $500 of dividends over the years, making the basis $5,500. Selling at $8,000 produces a taxable gain of $2,500, not $3,000.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.