Cost Basis

When a family sells an investment, the taxable gain is not simply the sale price — it is the sale price minus the cost basis. If a family purchased shares for an illustrative $500,000 and later sold them for $800,000, the taxable gain would be calculated on the $300,000 difference, not the full $800,000. Getting basis right therefore has a direct and meaningful impact on how much tax is owed. Errors in basis records are among the most common sources of tax filing mistakes for investors with long holding periods.

Basis can be straightforward — what was paid on a specific purchase date — or genuinely complicated. Inherited assets typically receive a "stepped-up" basis to the fair market value at the date of the original owner's death, which can substantially reduce the gain recognized when those assets are later sold. Gifted assets, assets received as part of a business transaction, and assets acquired through reinvested dividends all have their own basis rules. Families managing wealth across generations encounter all of these scenarios.

Accurate cost basis records are essential for tax-loss harvesting, for calculating gains on private equity positions, and for estate planning purposes. The family office commonly maintains a central records function that tracks basis across all accounts and asset types — one reason inventorying family assets thoroughly at the outset is so important. Because basis rules vary by asset type and jurisdiction and change with legislation, families must work with a qualified CPA and attorney on any situation involving inherited, gifted, or complex assets.