Cost Basis

When an asset is sold, the taxable gain equals the sale price minus the cost basis. A low basis, common when an asset has been held for many years and appreciated substantially, means most of the sale proceeds represent taxable gain. For families with significant wealth accumulated over decades, cost basis is often one of the most consequential numbers in the entire estate, even though it rarely appears on a brokerage statement in plain view.

Basis can be adjusted upward or downward by events beyond the original purchase. Stock splits, return-of-capital distributions, inherited assets (which receive a step-up in basis to fair market value at the date of death under current law), and reinvested dividends all affect the number. Keeping accurate records across decades and multiple custodians is a genuine operational challenge for complex families.

Consider a hypothetical founder who purchased shares in her company for a few cents each, decades ago. Today those shares are worth substantially more. Her cost basis is nearly zero, meaning an outright sale would generate an enormous taxable gain. Strategies such as tax-loss harvesting, charitable gifting of appreciated shares, or structures explored at Concentrated Stock Positions are sometimes evaluated precisely because of basis considerations.

A common confusion: cost basis is a tax concept, not an investment performance concept. A holding can be a poor investment and still carry a large embedded gain that complicates any exit decision.