Basis — also known as cost basis — is key to understanding how much you may owe on capital gains taxes once you've cashed out of a security.
It's the amount of money that you paid for an asset, and it can be adjusted to weigh dividend payments, stock splits and other developments.
The difference between your basis in an investment and the value of the asset when you sold it is how you can determine the magnitude of your gain or loss, as well as the size of your tax liability.
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How much capital gains you'll pay depends on how long you held the investment and your income tax bracket.
Taxpayers in the 25 percent to 35 percent brackets can expect to pay a 15 percent capital gains rate on assets they've held for at least a year and sold for a profit.
In the same scenario, taxpayers in the top bracket of 39.6 percent will pay a capital gains tax of 20 percent. They will also face an additional levy of 3.8 percent if their modified adjusted gross income is over $200,000 if they are single filers or $250,000 for married filing jointly.