Tax cost basis is the amount used to determine the taxable gain or loss on the sale of an asset. It’s essential to understand tax cost basis because it determines how much of a gain or loss one can realize when selling an asset. When an asset is purchased, the initial cost serves as the tax cost basis for future calculations. This basis can change over time if an asset is put into service, if improvements are made, or through other factors such as depreciation and amortization. Understanding your tax cost basis can be the difference between paying a lot of taxes or getting back a large refund; it’s just that important!