If you’ve ever sold stock or thought about cashing out part of your investments, you’ve probably wondered:
“How much of this do I actually get to keep?”
The answer depends a lot on one important concept: cost basis.
It sounds technical, but don’t worry — we’ll make it simple.
So… What Is Cost Basis?
Your cost basis is basically what you paid for something.
- If you bought a stock for $2,000 and later sold it for $3,000…
- Your cost basis is $2,000
- Your gain is $1,000 — and that’s what you might pay tax on
That $1,000 is called a capital gain, and it’s taxable in most cases.
Why It Matters
When you sell an investment, you don’t pay tax on the full amount — just the gain. But to figure that out, you need to know your cost basis.
If your cost basis is missing or wrong, the IRS might assume it’s $0… and then you’re taxed on the entire sale amount 😬
That’s why it’s so important to keep track.
How ReachFi Uses It
In ReachFi, we estimate how much tax you might owe when you sell investments, like when you’re:
- Taking a sabbatical
- Retiring early
- Withdrawing to cover a major expense
We let you enter an estimated cost basis so we can show a ballpark tax impact. It’s not exact, but it gives you a realistic sense of what’s happening.
The more accurate your numbers, the better your plan — but even rough numbers help you make smarter decisions.
Quick Tips to Manage Cost Basis
- Check your brokerage account — most track this for you automatically
- If you reinvest dividends, those count too (they raise your cost basis)
- If you inherited an investment, your cost basis might reset to the value at the time you received it
- If you’re not sure — guess conservatively, or ask your advisor
Final Thought
Cost basis might sound like tax code stuff, but it’s a powerful tool for more thoughtful planning.
It helps you:
- Avoid surprise taxes
- Decide which investments to sell
- See the real impact of your choices
👉 Want to see how this plays out in your own FIRE plan or life scenario?
Run a free simulation at ReachFi.ai — no credit card required.