Average Cost Basis

The average cost basis of an investment is relevant when the same asset was purchased over several trades with different prices. The average cost basis can be calculated by dividing the total ownership position by the total amount invested. However, the calculation becomes more complicated if sales of the asset have occurred as well. At this point, the average cost basis depends on which lot the sale is considered to have come from because they have different cost bases. Common methods are to attribute the sale to the oldest lot or to the newest lot. Alternatively, attributing a sale to the high cost lot may optimize an investors tax obligation.