What is the “cost basis” of an investment? Do I need to keep this information for both taxable and tax-deferred accounts? Paul Fain, Certified Financial Planner and President of Asset Planning Corporation answers these questions this week on WBIR.
WHAT IS COST BASIS?
It is your total contribution into an investment: a stock, bond, mutual fund, property. Example: $5,000 Buy XYZ Mutual Fund
DO OTHER FACTORS INCREASE OR DECREASE YOUR COST BASIS?
Yes. For example, additional buys or sells, re-invested interest or dividends, or improvements to a property (real estate, rental homes, etc.) may increase or decrease it.
WHY IS THIS INFORMATION SO IMPORTANT TO TRACK?
- Taxes when you sell!
- The difference between your CB and your sales proceeds is a CAPITAL GAIN (OR LOSS)
- Example: Sell XYZ Mutual Fund $7,500-$5,000 (CB) = $2,500 capital gain
DO WE NEED TO TRACK COST BASIS IN A TAX-DEFERRED RETIREMENT ACCOUNT?
- No: If you have a traditional IRA or 401(k), you do not need to track it.
- Yes: However, if you have a non-deductible IRA or company stock in 401(k), you should track your cost basis in a tax-deferred retirement account.
FAST MARKET FACT: Long-Term Capital Gain Tax Rates
Tax Rate: Single Taxpayers: Married Filing Jointly: Heads of Household:
0% $0-$39,375 $0-$78,750 $0-$52,570
15% $39,376-$434,550 $78,751-$488,850 $52,571-$461,700
20% $434,551 or more $488,451 or more $461,701 or more
QUESTION FOR OUR MONEYMAN?
Want to learn more about investing and long-term capital gain tax rates? Do you have other general questions about financial planning? Send them to our Knoxville Certified financial planner Paul Fain or directly to Paul@assetplanningcorp.com!
