Market value and cost basis are two of the most important concepts to understand when it comes to financial planning. Market value is the current worth of an asset or security, determined by its supply and demand in the marketplace. Cost basis, on the other hand, is the original price at which you purchased an asset or security. Both have distinct implications for financial management.
Market value can change rapidly due to different factors such as inflation, economic conditions, sector performance, and more. It’s important to keep track of the market value of your investments in order to make informed decisions about your portfolio. When calculating taxes on any gains, one will use the market value as noted on the sale date in order to determine the amount that needs to be paid.
Cost basis is relevant when selling something for a profit or loss. When selling for a profit, the cost basis represents how much of the gain can be taxed. If the item was sold for less than its purchase price, then its cost basis determines how much of the loss can be used to offset any profits made during the same year.
Knowing the difference between market value and cost basis is an essential tool for wise financial decisions – now you know!