What Is Cost Basis — And Why Should You Care?

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.