Cost basis is the original value of an asset for tax purposes — usually the purchase price plus commissions or improvements. When you sell, your taxable capital gain is the sale price minus the cost basis.
Reinvested dividends increase your basis, and inherited assets often get a 'stepped-up' basis to their value at the date of death. Tracking basis accurately is essential to avoid overpaying tax on a sale.
Related terms: DRIP · Debt-to-Income Ratio