The tax basis of stock depends on a number of factors. It's extremely important because the amount of the tax basis will determine how much tax you'll pay. The amount of sale minus the cost---which is the tax basis---determines the amount of tax. However, you don't have to pay taxes on stock until you sell it.

Purchase

If you buy stock, the tax basis or cost is simple to calculate. If you buy 50 shares of a stock for $1,000, the cost of each share is $20.

Gift

When you receive a gift of stock, the calculation is a little more difficult. You need to know a couple of things about the stock in order to know your basis. First, you need to ask the person who gave you the gift what their basis is, and you need to know the cost of the stock on the day you received the gift. Whichever is less is the amount you want to use for the basis of the stock.

Inherit

When you inherit stock, you need to know the cost of the stock on the date of death. It doesn't matter what the previous owner paid for the stock; all that matters is the cost of the stock on the date of his death.

Joint Ownership

If you own stock jointly, and one of the parties dies, your basis changes to the value of the stock on the date of his death. The only time this is different is if the two parties are married; in that case, only half the stock is revalued on the date of death. The other half (originally "belonging" to the surviving spouse) is the price of the original purchase.

Stock Split

When a company announces a stock split, the basis is half what it was before the split. In other words, if you pay $50 for 200 shares of stock, and that stock split, you now have 400 shares of stock and the basis of each share is $25.

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Cost Basis - Tracking Your Tax Basis

Understanding cost basis