Cost Basis Reporting refers to the process by which brokers and financial institutions track and report the original value of an asset for tax purposes. This value is essential for determining capital gains or losses when the asset is sold.
In detail, cost basis includes the purchase price of the asset, plus any associated costs such as commissions and fees. When a taxpayer sells an asset, the gain or loss is calculated by subtracting the cost basis from the sale price. For example, if an investor buys shares of stock for $1,000 and sells them for $1,500, the cost basis is $1,000, and the capital gain would be $500.
The IRS requires brokers to report this information on Form 1099-B, which includes the cost basis of securities sold during the tax year, helping taxpayers accurately report their earnings and comply with tax regulations.
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