In most cases, that means selling the shares with the highest cost basis — with the reasoning being that doing so results in the smallest capital gain (and therefore the lowest tax cost) or the largest loss (and therefore the greatest tax savings). So you may want to sell the shares with the lowest cost basis.

Which cost basis method should I choose?

Choosing the best cost basis method depends on your specific financial situation and needs. If you have modest holdings and don’t want to keep close track of when you bought and sold shares, using the average cost method with mutual fund sales and the FIFO method for your other investments is probably fine.

Where does the cost basis of an asset come from?

Cost basis starts as the original cost of an asset for tax purposes, which is initially the first purchase price . But the initial purchase price is only one part of the overall cost of an investment.

How are real estate taxes treated on a cost basis?

If you buy real property, certain fees and other expenses become part of your cost basis in the property. Real estate taxes. If you pay real estate taxes the seller owed on real property you bought, and the seller didn’t reimburse you, treat those taxes as part of your basis.

What causes an increase in the basis of a property?

Increases to Basis 1 The cost of extending utility service lines to the property. 2 Impact fees. 3 Legal fees, such as the cost of defending and perfecting title. 4 Legal fees for obtaining a decrease in an assessment levied against property to pay for local improvements. 5 Zoning costs. 6 The capitalized value of a redeemable ground rent.

How are capital gains on real estate investment property calculated?

Your capital gains are calculated by subtracting this total cost basis from the price at which you are now selling. For example, If you purchased an investment property for $100,000 plus $5,000 in closing costs, and then added $20,000 in improvements over the years, you cost basis would be $125,000.