Ever wonder how the IRS determines exactly how much profit you made on a sale? In this episode, we break down the critical concept of cost basis—the original cost of property adjusted for factors like depreciation—and why it is essential for calculating capital gains and losses.

Join us as we cover:

• The Fundamentals: We explain the "rock analogy" to illustrate how basis works: if you buy a rock for $20 and sell it for $25, your taxable capital gain is $5. We also discuss "adjusted basis," viewing an asset like a savings account where capital improvements are deposits and depreciation deductions are withdrawals.

• Acquisition Methods Matter: The rules change depending on how you get the asset. We explain why assets acquired by inheritance receive a "stepped-up  ...