Cost basis
The amount treated as paid for an asset when working out a taxable gain. A low one, typical of a long-held concentrated position, means a large tax bill on sale.
Where you will meet it
Cost basis appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain how tax-efficient different asset classes tend to be and propose tax-management techniques for allocating assets
“Harvesting a 50,000 loss at a 25% rate saves 12,500 now, but lowers the cost basis, so much of the benefit is deferral unless future rates differ.”
- Explain and propose planning for passing wealth to others by lifetime gifts
“Against this, the giver loses control and must retain enough for their own needs, and in some systems a gift carries over the original cost basis whereas assets passing at death may get a reset basis.”
Practise it
Practise cost basis until it is automatic: questions that explain every wrong option.
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