Can we say if the account do not have the unrealized gain, the cost basis (% of account value) will be 1 for capital gain tax case? Thanks.
Just to confirm - are you referring (1) to the T cg x Basis formula
I mean B in below formula. Thanks for the help.
Investment Principal*[(1+R)^n*(1-T)+T\ *B]
Yes, I will assume the basis is 1, in case there are no unrealised gains.
Go back to the basics of the formula itself.
You had an asset with a cost basis of B, which is now worth 1$. It earns R% per year for N years.
and you pay T on the Capital Gains.
Asset value at end of N year = (1+R)^N
Capital Gains = (1+R)^N - B
Pay Tax of T% on the above
So end value = (1+R)^N - [(1+R)^N-B)*T]
= (1+R)^N* (1-T) + B*T