For tax purposes, your basis is the amount of your investment in a stock or mutual fund. You need to know the basis of the stock or mutual fund so that you can figure the amount of capital gain or loss you realize when you sell it. For most property you purchase, your basis is the amount you paid for the item (cost), including any commissions or fees that you paid.
If you received stock or shares of a mutual fund as a gift, then the basis is usually the amount the person who gave it to you paid for it. There are some situations, however, when the basis might be equal to the fair market value on the day you received the gift. This will happen when the value of the stock is less than the donor’s basis on the date of the gift and you sell the stock for a loss. For more information, see the "Sale of Property" chapter in IRS Publication 17: Your Federal Income Tax.
If you inherited stock or shares of a mutual fund in a tax year before 2010, the basis is usually the fair market value of the property on the day the person who bequeathed it to you died. In some cases, though, the cost of the stock or mutual fund is equal to the fair market value determined on a day other than the date of death.
If you inherited stock or shares of a mutual fund in tax year 2010 or later, the basis is the basis of the individual who bequeathed you the property. In some cases this basis may be stepped-up to the fair market value at the date of death by the executor. However, it is in the executors sole discretion whether or not to do so as there is a limited amount of basis step-up that may be apportioned between the estate assets in tax years 2010 and later.
To learn more, see the "Sale of Property" chapter in IRS Publication 17: Your Federal Income Tax.
For more information on situations that might affect basis, see these topics: