How to Calculate Adjusted Basis

All investments have a cost basis that needs to be tracked as you adjust things.

Every investment you make has a cost basis. Whether it is a house or shares of a company's stock, the money you initially used to purchase an asset or security is the cost basis. For instance, if you purchased 250 shares of stock for $1,000, the cost basis for that investment is $1,000. You have to know the cost basis of your investments to be able to calculate your gains and losses. Sometimes you might alter the cost basis by building an addition to your house or buying more shares of the same company's stock. When you do such things, you must calculate the adjusted basis for the investment.

Instructions

1. Determine the initial cost basis of your investment by calculating the original amount of money you spent to purchase the asset or security. For instance, suppose you purchased 250 shares of a company's stock at $4 per share. The cost basis for that investment would be $1,000. Or you might have bought a house for $200,000.

2. Track any adjustments you make to your initial investment. For instance, suppose that two months later, you buy or sell 100 shares of the same stock for $5 per share. Or you might build a $30,000 addition to your home.

3. Calculate your adjusted basis by factoring in the change to your investment. If you bought 100 more shares of stock at $5 per share, the calculation would look like this:

   Adjusted basis = $1,000 + $500 = $1,500

   Because a cost basis tracks how much total money is invested and not profits, if you have sold stock you would use the stock's original price at the time of investment for the adjusted basis calculation. So if you sold 100 shares, you would adjust your basis to reflect the amount you had originally invested in the remaining 150 shares at $4 per share, like so:

   Adjusted Basis = $1,000 - $400 = $600

   For the example of adding a $30,000 addition to a $200,000 house, the calculation would look like this:

   Adjusted basis = $200,000 + $30,000 = $230,000

References

• Investopedia: Adjusted Basis