Cost basispurchase cost and average price
Definition
Cost basis is what you paid for the shares you hold, including commissions. Both your paper gain and your taxable gain are calculated from it.
Cost basis is everything you paid to buy shares: the purchase price multiplied by the number of shares, plus the broker’s commission. Your gain or loss is calculated from the cost basis, both the current paper result and the one you report on your tax return.
Average price vs FIFO
When you buy the same shares at different prices, cost can be assigned in two ways. The average purchase price divides the total cost by the number of shares: 5 shares at 100 and 5 at 120 give an average of 110. The FIFO method tracks each lot separately and removes the oldest first when you sell. The average price is handy for a quick look at a position, but Poland’s PIT-38 return uses FIFO.
Shares bought in a foreign currency
When you buy in dollars or euros, the cost has to be converted into your home currency. To assess the current result, the exchange rate on the purchase date is usually used. For Polish tax purposes, the rules require the National Bank of Poland’s average rate from the last business day before the transaction. Either way, the exchange-rate change since the purchase becomes part of the gain or loss.
What changes the cost basis
- Buying more shares raises the position’s total cost.
- A partial sale removes the cost of the units sold, following FIFO.
- A stock split changes the number of shares and the cost per share, but not the position’s total cost.
- Dividends do not lower the cost basis: they are separate income.
Cost basis in FundStat
FundStat tracks the cost of each lot using FIFO and converts the cost of foreign assets at the purchase-date rate, so the exchange-rate change is part of the unrealized gain.
Related terms
All terms- FIFO methodThe FIFO (first in, first out) method assumes that when you sell shares, the ones bought earliest are sold first. Poland requires it for the PIT-38 tax return.
- Unrealized gainAn unrealized gain is the profit or loss on assets you still hold: current market value minus purchase cost. It moves with the market until you sell.
- Realized gainA realized gain is the result on units you have sold: sale proceeds minus their purchase cost. It is the realized result, not the paper gain, that is taxed.
- Exchange-rate impact on investment returnsWith foreign assets, your home-currency return combines the asset’s price change with the exchange-rate change. A stock can rise in dollars and still lose you money.