Before delving into calculating missing cost basis, let’s clarify what cost basis entails.
In simple terms, the cost basis of an asset is the original value of an asset for tax purposes, adjusted for factors such as reinvested dividends, stock splits, and capital improvements.
When you sell an asset, the capital gains tax you owe is typically based on the difference between the selling price and the cost basis.
Missing cost basis can arise due to various reasons, including lost records, incomplete documentation, or inherited assets with unknown purchase prices.
Without accurate cost basis information, determining capital gains or losses becomes challenging, potentially leading to errors in tax reporting and financial planning.
Start by reviewing brokerage statements and transaction history. Brokerage firms maintain records of transactions, including purchases, sales, and dividends reinvested.
While these records may not provide the exact cost basis, they offer valuable clues for reconstructing it.