SIE: 5.3.4. Tax Basis

5.3.4.  Tax Basis

In determining what profit an investor must include on her tax return, the IRS requires her to first calculate her tax basis (also known as cost basis) on the investment. The tax basis is the starting value (the price the investor paid) an investment’s profit or loss must be measured against, as adjusted for things such as commissions, stock splits, etc., which can raise or lower the tax basis.

Recall from Chapter 2 that a bond may be purchased for more than its par value on the secondary market. This is called a premium bond, and the amount by whic