Cost basis is certainly not something we think about on a regular basis, but it is critical to understand what it is when a loved one passes away. Here are answers to common questions about cost basis rules and implications. What is cost basis? Simply put, the cost basis is the purchase price of your stock, bond, or mutual fund investment. For example: If you purchased ABC mutual fund for $10,000 in a brokerage (non-retirement) account, this purchase price becomes your cost basis. Why does this matter? When you later sell your mutual fund, the cost basis helps determine your gain or loss on your investment, and subsequently, your potential tax liability. For example: if you sold ABC mutual fund 2 years later for $12,000, your gain on the fund would be $2,000 and would be taxed at capital gains rates. Other items that effect the cost basis include stock splits, reinvested dividends, and return...
Read More