I continually read in the Schweser notes about Tax basis?
What does that term mean?
Thanks!
That’s the original cost, less any depreciation/amortization/impairment taken for tax purposes.
Think of it as book value for tax purposes.
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Tax Basis or cost basis is the starting point for determining capital gains tax on sale of your asset. This is usually your original purchase price, plus certain other expenses incurred in acquiring the asset. For example of you bought 1 share a year ago at $1000 and you sell it today at $1,200, your tax basis is $1,000 and the tax man will tax you on the $200 gain. However the concept is not that simple when it comes to inherited assets or giftings in which case you cant use zero as your tax basis (since you inherited the asset) but the market value. In addition if the asset you bought is depreciable like equipment or vehicle or business property etc a tax depreciation is allowed or allowable which reduces the tax basis.
As Magician has said, it is like a book value but from the taxman’s perspective