Cost basis reporting FAQ

Cost basis is important for tax purposes because it is part of the calculation used to determine the amount of capital gain or loss when an asset is sold. The IRS now requires us to track and report to you and the IRS the cost basis and holding period on the sale of "covered" shares for the tax year in which the asset is sold.

General information

What is the definition of cost basis and what are tax lots?

  • Cost basis. Cost basis is the original cost of the asset purchased, including any reinvested dividends, reinvested capital gain distributions (for mutual funds), adjustments for sales charges, transaction fees, returns of capital and corporate actions, where applicable.
  • Tax lots. Cost basis is generally tracked by tax lot, which is a group of shares purchased on the same day for the same price. Special rules apply to mutual funds using the average cost method of accounting. Cost basis is important for tax purposes because it is part of the calculation used to determine the amount of capital gain or loss when the asset is sold (either by you, your heir or donee).
  • Cost basis is important when placing sell trades. Each time you sell shares, we will identify which shares have been sold based on a default tax lot method. Unless you instruct us otherwise at the time of sale, we will use our default tax lot method for the sale of your shares. You have the option to select a different default tax lot method for your account or, in most situations, to identify a specific tax lot at the time you choose to sell shares.

Why is cost basis important?

  • Because it's included in the calculation of capital gain or loss, cost basis can be an important factor in your tax picture, especially when it comes to selling, gifting, or inheriting investments. Being smart about how cost basis plays into investment decisions can help you avoid paying more taxes than you need to. Reach out to your Ameriprise financial advisor and tax preparer if you have questions about your specific situation. Please note that cost basis rules apply to nonqualified accounts, so this is not relevant for IRAs or qualified retirement plans.

What securities are covered by the new tax rules and when?

  • "Covered" is a term used to identify investments that are subject to required tracking and reporting of cost basis and holding period information under guidance of the new law and IRS regulations. Any gain/loss information is provided for informational purposes only and will not be reported to the IRS.
  • "Noncovered" identifies those investments that are not subject to the new required basis tracking and reporting. While we may be providing you with cost basis, holding period and gain/loss information for noncovered securities, it is for informational purposes only and will not be reported to the IRS.
  • Gross proceeds on sales will continue to be reported to both you and the IRS on securities in nonqualified accounts.
  • Investments become covered based on the investment type and the date purchased.
  • Example 1: shares of a mutual fund purchased before Jan. 1, 2012 are noncovered. Shares of the same mutual fund purchased on or after Jan. 1, 2012 are covered.
  • Example 2: a common stock purchased before Jan. 1, 2011 is noncovered. Shares of the same common stock purchased on or after Jan. 1, 2011 are covered.
  • The reporting requirement applies when covered securities are sold. Please note that when a mutual fund account has both covered and noncovered shares, average cost will be calculated separately for the noncovered and covered shares. Shares in the noncovered account will be redeemed first unless you tell us otherwise.
  • Summary of 2011 reporting changes. The first investments to be covered by the cost basis reporting requirements in 2011 included most equities or common stocks, preferred stocks, exchange traded funds (ETFs) and real estate investment trusts (REITs) when the taxpayer did not participate in a dividend reinvestment program1. This means that shares of common stock you purchase on or after Jan. 1, 2011 are covered by the new requirements. However, shares of the same stock that you purchased prior to Jan. 1, 2011 will remain noncovered.
  • Summary of 2012 reporting changes. Mutual funds, including open-ended and closed-end funds, and stocks and REITs in dividend reinvestment plans are covered if purchased on or after Jan. 1, 2012. The reporting requirement applies when covered securities are sold. We also began reporting on covered securities acquired by an S corporation (other than a financial institution) after Dec. 31, 2011.
  • Looking ahead to 2014. Cost basis regulations will be implemented for debt instruments and options with "less complex" features acquired on or after Jan. 1, 2014. If you purchase a bond at premium or discount on or after Jan. 1, 2014, you will have new election choices available that will impact cost basis and tax reporting.
  • The following table provides a description of the investment types and the dates they are considered covered under guidance of the law and IRS regulations.
  •   Shares purchased on or after Jan. 1, 20111 Shares purchased on or after Jan. 1, 20121 Securities purchased on or after Jan. 1, 20142
    "Covered" securities
    • Common stock
    • Preferred stock convertible to common stock
    • Some real estate investment trusts (REITs)
    • Exchange-traded funds (ETFs)
    • Mutual funds (Regulated investment companies), including closed-end funds
    • Stocks and REITs in dividend reinvestment plans (DRPs)
    • Certain debt securities
    • Certain options

    1 If a shareholder elected to NOT participate in a dividend reinvestment program (DRP), these securities were covered as of Jan. 1, 2011. If they are part of a DRP, they became covered in 2012.

    2 Additional debt instruments (and other securities) are scheduled to be covered starting Jan. 1, 2016, or at a later date determined by the IRS. More information will be provided soon.

What types of ownerships are SUBJECT TO cost basis reporting changes?

  • All nonqualified accounts subject to 1099-B reporting are also subject to these new cost basis reporting changes. This includes all accounts owned by:
    • Individuals
    • Individuals in joint accounts (including but not limited to Joint Tenants with Rights of Survivorship, Tenants in Common)
    • Uniform Gift and Transfer to Minors (UGMA and UTMA)
    • Partnerships
    • Trusts and estates
    • S Corporations (beginning Jan. 1, 2012)

What types of ownerships are NOT SUBJECT TO cost basis reporting changes?

  • Corporations, government entities, financial institutions, etc. are not subject to cost basis reporting changes.
  • Retirement and education accounts are not subject to the new cost basis reporting changes. Distributions from these accounts will continue to be reported as they have in the past. Retirement and education accounts, as well as any one of them you might inherit, are listed below:
    • IRAs
    • Roth IRAs
    • SIMPLEs
    • SEPs
    • SAR-SEPs
    • 403(b) / TSCAs
    • 401(k)s
    • 401(a)s
    • Coverdell Education Savings Account (CESA)
    • 529 Plans

How is cost basis shown on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions?

  • The cost basis and gain/loss information is now included on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, although not all of the information shown on the form is reported to the IRS. If you sold or redeemed nonqualified securities in 2013, your tax package will include one or more Forms 1099-B. Your Form 1099-B may have up to five sections on line 6:
    • SHORT-TERM TRANSACTIONS 6 – COVERED tax lot for which cost basis is reported to the IRS Cost basis, holding period, date of acquisition and whether a wash sale was disallowed - reported to the IRS
      SHORT-TERM TRANSACTIONS 6 – NONCOVERED tax lot for which cost basis is NOT reported to the IRS Cost basis, holding period, date of acquisition and whether a wash sale was disallowed - not reported to the IRS (proceeds, date of sale, CUSIP, description, quantity and any withholding continues to be reported to the IRS)
      LONG-TERM TRANSACTIONS 6 – COVERED tax lot for which cost basis is reported to the IRS Cost basis, holding period, date of acquisition and whether a wash sale was disallowed - reported to the IRS
      LONG-TERM TRANSACTIONS 6 – NONCOVERED tax lot for which cost basis is NOT reported to the IRS Cost basis, holding period, date of acquisition and whether a wash sale was disallowed - not reported to the IRS (proceeds, date of sale, CUSIP, description, quantity and any withholding continues to be reported to the IRS)
      UNDETERMINED TERM TRANSACTIONS 6 – NONCOVERED tax lot for which cost basis is NOT reported to the IRS Transactions for which basis is not reported to the IRS and for which short- or long-term determination is unknown. Review your investment records for the date of acquisition to determine if the transactions in this section are short- or long-term transactions.
  • Each section will identify the securities sold, quantity, proceeds and, if known, date of acquisition, cost or other basis, wash sale loss disallowed and gain or loss information.
  • The undetermined section will include transactions for which cost basis and/or holding period can’t be determined based on our records. These will typically include principal payments, commodity/royalty trusts or tax lots for which we do not have cost basis information. For transactions in the “Undetermined” section you will need to use your personal records to complete your tax returns.

What does it mean if ‘various’ is shown as the Date of sale?

  • If you sold multiple tax lots (for example, because you purchased the stock on different days) for the same security with the same term of sale (short-term or long-term), covered status and sale date, the tax lots will be combined as an aggregate tax lot on your Form 1099-B with the “Date of acquisition” listed as “various.” The underlying individual tax lots are provided without a “Date of sale or exchange.”
  • Any records that don’t contain a “Date of sale or exchange” are informational only and not reported to the IRS. American Enterprise Investment Services Inc. reports the aggregate total to the IRS. Please note: when preparing your tax return, you should rely on your tax preparer to determine whether to use the underlying individual tax lots or the aggregate totals but not both, as this would result in double reporting.
  • You may have purchased or acquired shares on different dates. If these separate tax lots are sold as part of a single transaction, the tax reporting for the sale may be split onto different sections of the Form 1099-B, depending on whether the shares were held long-term or short-term and whether the shares were covered or noncovered. Since the transaction reporting is split into different sections of the Form 1099-B, you may need to report information from each of these sections to the IRS on your tax return. Consult a tax professional or review the IRS 2013 Instructions for Schedule D (and Form 8949) on how to report these tax lots.

Why is the cost basis information for tax lots sold with a disallowed loss different on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, from what I see on my financial statement and on ameriprise.com?

  • In situations where you have a sale impacted by a wash sale, the cost basis information on your tax statement may be different from what is on ameriprise.com because the IRS requires the basis to be reported separately from the wash sale loss disallowed adjustment for sales of covered securities. The wash sale loss is calculated in the IRS form.

Why did I receive a corrected Form 1099-B, Proceeds From Broker and Barter Exchange Transactions?

  • One of the most common reasons you might receive a corrected tax statement is income reclassification. Income reclassification is a change in the “tax character” of income or distributions. An income reclassification occurs when a security issuer reclassifies dividend or interest payments in a way that changes how you would treat that income when filing your taxes. When this occurs after initial tax statements have been issued, we are required to send a corrected tax statement to you. If you own multiple securities subject to reclassification, you may receive multiple amended statements.
  • In the past, these reclassifications have often been generally limited to corrected Form 1099-DIV, Dividends and Distributions. Beginning with 2011 tax reporting, any reclassifications that change cost basis information, specifically when there has been a return of capital, may also result in a corrected Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. This can occur if the underlying security was sold during the year but after a dividend subject to the reclassification was paid, provided that reclassification changed cost basis. A return of capital reduces the cost basis in the security so when the security is sold there is more gain or less loss than originally reported. An adjustment due to a wash sale can also result in a corrected Form 1099-B if cost basis is reported to the IRS.
  • For example, a reclassification could change a long-term capital gain distribution, change a qualified dividend or change an ordinary dividend into a return of capital. Such a change would result in an amended tax statement.
  • For noncovered securities, cost basis information is not reported to the IRS but is issued to you as supplemental information when available. As a result, a reclassification that changes the cost basis of a noncovered security would not result in a corrected Form 1099-B sent to the IRS. However, we will provide you with an updated informational tax statement that includes the updated cost basis due to the reclassification. These cost basis rules first applied to mutual fund sales in 2012.

Where can I find more information about cost basis?

  • If you have any questions about cost basis and the impact on your investments, please contact your Ameriprise financial advisor and tax preparer. If you're not currently working with an advisor, find an advisor who is right for you.
  • For more information on cost basis reporting, see Publication 551, Basis of Assets on the Internal Revenue Service (IRS) website.
Equities
Tax lot method

What is the default tax lot method for equities?

  • The default tax lot method for equities3 varies by Ameriprise product type. Most product types default to "First In – First Out" tax lot method. For certain separately managed accounts where the money manager has discretionary authority, the sponsor has chosen to use the "Highest In – First Out" method as their default. Please see the chart provided below the next question for a full list of default tax lot methods by Ameriprise product type. We have set default tax lot methods based on our account types and by investment types held within those accounts. We will follow these methods unless you instruct us otherwise. For non-discretionary accounts, you may accept this default, change your default tax lot method to an alternate tax lot method or identify a specific tax lot when placing a sell trade.

What is the default tax lot method for selling equities?

  • Each time a sell trade of covered and/or noncovered shares is initiated on the account, we will assign the sold shares based on a default tax lot method for the account. For non-discretionary accounts, you can use the Ameriprise "default tax lot method" based on the type of account you own, elect to designate a default tax lot method that is different than the Ameriprise default or at the point of any sell trade, designate the specific tax lots you are choosing to sell. It is important to note that the assigned tax lots for the sale of a covered security cannot be changed once the trade settles. Generally, a stock trade settles 3 days after the trade date.
  • 3Equities include stock, preferred stock (convertible to common stock), real estate investment trusts (REITs) and exchange-traded funds (ETFs).

    Your account: Default tax lot methods based on investment type: Stocks, REITs and ETFs
    Ameriprise® Brokerage, Strategic Portfolio Services (SPS) Advantage or Strategic Portfolio Services (SPS) Advisor First In – First Out
    Ameriprise® Select Separate, Vista Separate, Investor Unified and Access Accounts Highest In – First Out4
    Ameriprise® Active Portfolios Account Highest In – First Out

    4 For certain separately managed accounts, where the money manager has discretionary authority, the sponsor has chosen to use the Highest In – First Out method as their default.

How can I change my tax lot method for equities?

  • If you want to continue to use our default tax lot method, as listed above, no action is required. To determine if a different cost basis accounting method is appropriate for you, please work with your tax adviser. If you determine that a change is appropriate, please contact your Ameriprise financial advisor to initiate a change request. Of course, you can choose to specifically identify shares to be sold at the time of sale. The default method applies if no specific identification is made.
  • We support the following tax lot methods:
    • First In – First Out:  the shares purchased first will be sold first.
    • Last In – First Out: the shares purchased last will be sold first.
    • Highest In – First Out: the shares with the highest cost will be sold first.
    • Specific Lot Identification: you choose the shares to sell.
Tax reporting

What should I know about reporting cost basis and gain/loss information on equities (acquired prior to 2011)?

  • Prior to 2011, brokers and securities issuers, like REITs and mutual funds, did not report cost basis or holding period information to the IRS. Individual taxpayers were responsible for tracking the cost basis of their investments and for calculating and reporting the holding period and any realized gain or loss on the sale of those investments. Taxpayers were generally required to report this information in prior years on Schedule D (Form 1040), Capital Gains and Losses.
  • For tax years of 2010 and earlier, our brokerage and mutual fund clients may have received an informational statement in their tax package that included cost basis, the holding period and associated realized gain or loss information, when available, for certain investments sold during the year. For sales of noncovered shares in 2011 and beyond, we will continue to provide this data, when available, to our clients for purely informational purposes but will not report it to the IRS. Your tax adviser may need to make adjustments to these numbers.
  • For data related to noncovered investments, including all data for 2010 and prior tax years, it is important to verify using your own records when calculating gains or losses for tax reporting purposes. For noncovered shares, we may make adjustments for returns of capital, wash sales, corporate actions, basis transfers and gifted and inherited shares, but we may not have made these prior to Jan. 1, 2011. Please see your tax adviser in those situations. We also cannot verify cost basis information obtained through corporate acquisition (such as H&R Block Financial Advisors Inc. and J. & W. Seligman & Co. Inc.).

What should I know about reporting cost basis and gain/loss information on equities (acquired in 2011 and beyond)?

  • In 2011, we began to record and track the cost basis and holding period for covered securities (most stock purchased in 2011, but not stock in a dividend reinvestment program) to you and to the IRS.
    • For all securities we report proceeds, date of sale, CUSIP, description, quantity and any withholding to you and to the IRS.
    • For covered securities we also report date of acquisition, cost basis, term of gain or loss (holding period) and the wash sale disallowed loss. Cost basis for covered shares is adjusted for non-dividend distributions (Returns of Capital), wash sales, corporate actions and gifted and inherited shares (when we have the correct information). Gain/loss amounts are not reported to the IRS.
    • If there is a split between covered and noncovered status and the term of sale, you may see a single sale reflected in different sections of the Form 1099-B. This cost basis information will be reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for the tax year in which the covered investment was sold.
Wash sale

What is a wash sale?

  • IRS Publication 550, Investment Income and Expenses, defines a wash sale as follows: a wash sale occurs when you sell or trade a stock or other securities at a loss, and within 30 days before or after the sale you:
    • Buy a substantially identical stock or securities
    • Acquire substantially identical stock or securities in a fully taxable trade
    • Acquire a contract or option to buy substantially identical stock or securities, or
    • Acquire substantially identical stock or securities for your individual retirement arrangement (IRA) or Roth IRA
  • Cost basis regulations for covered securities* require American Enterprise Investment Services Inc. (AEIS) to track wash sales for identical stock or securities within the same account only.
  • You are responsible for tracking wash sales resulting from the sale at a loss and the subsequent purchase of substantially identical stock or securities and/or options to buy substantially identical stock or securities within 30 days when they are held in different accounts. For example, if you own two separate brokerage accounts and you sell a security at a loss in one account and purchase the identical security in the other account within 30 days, you will need to track the wash sale, as these will not be tracked by AEIS. Not only are separate brokerage accounts different accounts, but a regular nonqualified brokerage account is a different account from an IRA qualified brokerage account.
  • *Covered securities include most equities or common stocks, preferred stocks, exchange traded funds (ETFs) and real estate investment trusts (REITs) that you purchased on or after Jan. 1, 2011 and mutual funds, including closed-end funds and stocks and REITs in dividend reinvestment plans purchased on or after Jan. 1, 2012. Beginning Jan. 1, 2014, certain debt securities and certain options will become covered.

What are the consequences of a wash sale?

    • Disallowed loss – taxpayer is not allowed to claim the loss on the portion of the sale subject to the wash sale rules
    • Basis Adjustment – disallowed loss amount is added to the basis of the replacement security
    • Holding Period – holding period for the replacement security includes the holding period of the security sold
  • The disallowed loss is reported on Line 5 (Wash sale loss disallowed), on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
Short sales

What are the rules for reporting equities’ short sales?

  • Beginning with 2011 tax reporting, we will not report a short sale entered into until the year that you deliver a security to satisfy the short sale obligation. This means:
    • We will not report the sale of a security that occurs at the opening of a short sale
    • We will report the buy to close transaction that occurs when the short sale is closed

    Your 1099-B for a short sale that was closed in 2013 will provide the following information:
    Box 1a - Date of sale: this will be the date on which the security was delivered to close the short sale (generally the settlement date for buy to close)
    Box 1b - Date of acquisition: this will be the acquisition date of the security that was delivered to close the short sale (trade date for buy to close)
    Box 1c - Whether any gain or loss on the closing of the short sale is short-term or long-term based on the acquisition date of the security delivered to close the short sale
    Box 1e - Quantity of the security delivered to close the short sale
    Box 2 - Proceeds of stocks, bonds, etc.: this will be the proceeds received when you opened the short sale
    Box 3 - Cost or other basis: this will be the adjusted basis of the security delivered to close the short sale (the purchase amount for the buy to close)

    Example: You open a short sale on May 23, 2013, selling 1,000 shares of ABC Corp. for $28,000.00. You close the short sale on July 19, 2013, by purchasing 1,000 shares of ABC Corp. for $26,000.00. The shares purchased are covered securities. We will report the following information on your Form 1099-B:
    Box 1a - Date of sale: 07/19/13 (settlement date)
    Box 1b - Date of acquisition: 07/19/13 (trade date)
    Box 1c - Short-term
    Box 1e - 1,000
    Box 2 - Proceeds of stocks, bonds, etc.: 28,000.00
    Box 3 - Cost or other basis: 26,000.00
    Gain or loss - 2,000.00 (reported to you for information purposes only on Form 1099-B)

    For more information, please refer to instructions for 2013 Form 1099-B, IRS Publication 550, Investment Income and Expenses, available on irs.gov, or speak with a tax professional.

S Corporations

What about cost basis reporting of equities for S Corporations?

  • We are required to report sales of covered securities acquired by an S Corporation after Dec. 31, 2011. We will report the gross proceeds on the sale, the associated cost basis, the holding period and the wash sale disallowed loss, along with all of the other required information on Form 1099-B, to the S Corporation and to the IRS. We have contacted our corporate clients asking them to verify their corporate status. According to the regulations, if an organization fails to certify their corporate status as a C Corporation, we are required to tax report to the corporation and the IRS on these transactions as if the organization is an S Corporation.
Gifts and inheritances

What should I know about cost basis on equity transfers or equity gifts and inheritances?

  • Equity transfers. If you request to move shares of investments between brokerage firms via either an Automated Customer Account Transfer (ACAT) or a non-ACAT transfer, your previous brokerage firm is required to provide updated cost basis information for all covered stocks and your new brokerage firm is required to accept and continue to track that information for you. Some information may transfer between some broker dealers for noncovered securities as a service to you.
  • Equity gifts and inheritances. For gifted or inherited covered securities, we update our cost basis records in accordance with rules provided by the IRS. While our processes generally apply the IRS rules related to the basis of gifted or inherited securities, they do not take into account all possible situations that may affect the basis of your gifted or inherited securities. In some instances we will not be tracking and reporting cost basis information if we don’t have enough data to do it correctly. Therefore, it is important that you work closely with your tax adviser when transferring and selling assets acquired by gift or inheritance in order to have the most accurate basis information and communicate that information to us so that our reporting is accurate.
Mutual funds
Tax lot method

What is the default cost basis calculation method for mutual fund shares?

  • The default cost basis calculation method for most mutual fund shares is "average cost." The average cost basis of covered and noncovered mutual fund shares is tracked separately. Noncovered shares are generally redeemed first.

What is the default tax lot method for selling mutual fund shares?

  • Please see the chart provided below for a full list of default tax lot methods by Ameriprise product type. We have set default tax lot methods based on our account types and by investment types held within those accounts. We will follow these methods unless you instruct us otherwise. Noncovered shares are generally redeemed first.
  • Your account type: Default cost basis calculation method for open-ended mutual funds Default tax lot methods for closed-end mutual funds
    Account numbers ending in "002" Average cost5 Not applicable
    Ameriprise® Brokerage, Strategic Portfolio Services (SPS) Advantage or Strategic Portfolio Services (SPS) Advisor Average cost5 First In – First Out
    Ameriprise® Select Separate, Vista Separate, Investor Unified and Access Accounts Average cost5 Highest In – First Out6
    Ameriprise® Active Portfolios Account Average cost5 Highest In – First Out

    5 We will redeem shares based on the default tax lot method First In-First Out; however, the cost basis of the shares will be calculated using the average cost method.

    6 For certain separately managed accounts, where the money manager has discretionary authority, the sponsor has chosen to use the Highest In – First Out method as their default.

How can I change my tax lot method for mutual funds?

  • If you want to continue to use our default tax lot method, as described in the question, “What is the default lot method for selling mutual fund shares?”, no action is required.
  • To determine if a different cost basis accounting method is appropriate for you, please work with your tax adviser. If you determine that a change is appropriate, please contact your Ameriprise financial advisor to initiate a change request.
  • The IRS permits several methods for determining the cost basis of mutual fund shares redeemed. However, the only option available to clients who hold mutual funds in an account that has an account number ending in 002 is the average cost method. If you wish to use a different tax lot method, you will need to move your mutual funds into an Ameriprise brokerage account.
  • We support the following tax lot methods for mutual fund shares in an Ameriprise brokerage account:
    • Average cost – this is the most common method for mutual funds and uses the following calculation:
      Average Cost = (Total cost of all shares for a specific mutual fund) / (Total number of shares for this mutual fund held in your account)
    • First In – First Out: The shares purchased first will be sold first.
    • Last In – First Out: The shares purchased last will be sold first.
    • Highest In – First Out: The shares with the highest cost will be sold first.
    • Specific Lot Identification (also called versus purchase): You choose the shares to sell.
  • In all cases adjustments will be made to the basis for events such as wash sales, corporate actions, etc.
  • The tax lot method of the covered shares within an account may be different depending on when the shares were purchased and what type of activity has occurred within the account since the purchase.
  • If you make a change to your cost basis accounting method before selling covered and noncovered mutual funds shares under the average cost tax lot method, the method change will apply to both covered and noncovered mutual fund shares that you currently own and those covered shares that you purchase in the future. If you elect to change from average cost to another method after disposing of any covered or noncovered mutual fund shares (i.e. sale, journal, transfer, etc.), the method change will apply only to covered shares acquired after the date of the most recent disposition.
  • For example:
  • Your covered mutual fund shares purchased after 2011 (cost basis and holding period reported to the IRS)
    Tax lot method: 3,000 shares assigned an average cost at $4.50 per share (the average based on a number of purchases at different prices)
    May 10, 2013: you sell 100 shares with a cost basis of $4.50 per share. On May 13, 2013: you change your tax lot method to specific lot identification after the sale (this assigns and locks in $4.50 per share to all the covered shares you own at that time)
    May 17, 2013: you purchase 100 shares at $3.00. On May 20, 2013: you buy 100 shares at $5.50. On May 21, 2013: you buy 100 shares at $6.00.
    May 24, 2013: you sell 100 shares and identify which shares you want to sell at the time of sale; you can choose from the following tax lots:

    2,900 shares @ $4.50 per share

    100 shares @$3.00 per share

    100 shares @$5.50 per share

    100 shares @$6.00 per share

Tax reporting

What should I know about reporting cost basis and holding period information on mutual funds (acquired prior to 2012)?

  • Prior to 2012, brokers and securities issuers, like REITs and mutual funds, did not report cost basis or holding period information on sales of mutual funds to the IRS. Individual taxpayers were responsible for tracking the cost basis of their mutual fund shares and for calculating and reporting any realized gain or loss on the sale of those mutual fund shares. Taxpayers were generally required to report this information in prior years on Schedule D (Form 1040), Capital Gains and Losses.
  • For tax years of 2011 and earlier, our brokerage and mutual fund clients may have received an informational statement in their tax package that included cost basis and associated realized gain or loss information, when available, for certain investments sold during the year. For noncovered shares acquired prior to 2012 and sold in 2012 and beyond, we will continue to provide this data, when available, to our clients for purely informational purposes but will not report it to the IRS. Your tax adviser may need to make adjustments to these numbers.
  • For data related to noncovered investments, including all data for 2011 and prior tax years, it is important to verify using your own records when calculating gains or losses for tax reporting purposes. For noncovered mutual fund shares, we may make adjustments for returns of capital, wash sales, basis transfers and gifted and inherited shares, but we may not have made these in the past. Please see your tax adviser in those situations.

What should I know about reporting cost basis and gain/loss information on mutual funds (acquired in 2012 and beyond)?

  • In 2012, we began to record and track the cost basis and holding period for covered mutual fund shares for the purposes of reporting that information to the IRS.
    • For all mutual funds we report proceeds, date of sale, CUSIP, description, quantity and any withholding to you and the IRS.
    • For covered mutual funds we also report date of acquisition, cost basis, term of gain or loss (holding period) and the wash sale disallowed loss. Cost basis for covered mutual fund shares are adjusted for non-dividend distributions (Returns of Capital), wash sales and for gifted and inherited shares (when we have the correct information). Gain/loss amounts are not reported to the IRS.
    • If there is a split between covered and noncovered status and the term of the sale, you may see a single sale reflected in different sections of the form. Average cost wash sales are not calculated between covered and noncovered tax lots. This cost basis information will be reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for the tax year in which the covered mutual fund shares were sold.
Wash sale

What is a wash sale?

  • IRS Publication 550, Investment Income and Expenses, defines a wash sale as follows:
  • A wash sale occurs when you sell or trade a stock or other securities at a loss, and within 30 days before or after the sale you:
    • Buy a substantially identical stock or securities
    • Acquire substantially identical stock or securities in a fully taxable trade
    • Acquire a contract or option to buy substantially identical stock or securities, or
    • Acquire substantially identical stock or securities for your individual retirement arrangement (IRA) or Roth IRA
  • Cost basis regulations for covered securities* require American Enterprise Investment Services Inc. (AEIS) to track wash sales for identical stock or securities within the same account only. You are responsible for tracking wash sales resulting from the sale at a loss and the subsequent purchase of substantially identical stock or securities and/or options to buy substantially identical stock or securities within 30 days when they are held in different accounts. For example, if you own two separate brokerage accounts and you sell a security at a loss in one account and purchase the identical security in the other account within 30 days, you will need to track the wash sale, as these will not be tracked by AEIS. Not only are separate brokerage accounts different accounts, but a regular nonqualified brokerage account is a different account from an IRA qualified brokerage account.
  • *Covered securities include most equities or common stocks preferred stocks, exchange traded funds (ETFs) and real estate investment trusts (REITs) that you purchased on or after Jan. 1, 2011, and mutual funds, including closed-end funds and stocks and REITs in dividend reinvestment plans purchased on or after Jan. 1, 2012. Beginning Jan. 1, 2014, certain debt securities and certain options will become covered.

What are the consequences of a wash sale?

    • Disallowed loss – taxpayer is not allowed to claim the loss on the portion of the sale subject to the wash sale rules
    • Basis Adjustment – disallowed loss amount is added to the basis of the replacement security
    • Holding Period – holding period for the replacement security includes the holding period of the security sold
  • The disallowed loss is reported on Line 5 (Wash sale loss disallowed), on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.

Under what circumstance might I need to apply the cost basis rules for a wash sale on a mutual fund myself?

  • The disallowed loss and basis adjustments will not be calculated for some wash sales. You may need to apply the cost basis rules for a wash sale yourself if you have:
    • Sale at a loss, and a purchase transaction for the same mutual fund within 30 days that occur in different brokerage accounts (account numbers ending in 133)
    • A wash sale that occurs between your covered and noncovered mutual fund shares held within the same account (Columbia Mutual Funds held at Ameriprise outside of a brokerage account - account numbers ending in 002)
    • Sale and purchase transactions that occur in different mutual fund accounts (Columbia Mutual Funds held at Ameriprise outside of a brokerage account – accounts ending in 002)
  • Under the new cost basis rules, the average cost basis calculation for mutual funds is calculated separately for covered (purchased on or after Jan. 1, 2012) and noncovered (generally, purchased before Jan. 1, 2012) fund shares. Because there are two different cost basis numbers, brokers are not required to calculate wash sales across the two categories. We will calculate wash sales between covered and noncovered shares for brokerage accounts (accounts ending in 133), however, for Columbia Mutual Fund accounts (accounts ending in 002), we will not calculate wash sales between covered and noncovered shares. For the Columbia Mutual Fund accounts, you must apply the wash sale rules yourself if the wash sale occurs between your covered and noncovered mutual fund shares.
  • For accounts ending in 002, you must apply the cost basis rules yourself if you sell noncovered (generally, purchased before 2012) mutual fund shares at a loss any time on or after Jan. 1, 2012 and have a purchase of identical mutual fund shares within 30 calendar days before or after the sale. You have a wash sale and the disallowed loss will not appear on your year-end tax statement and you will need to factor the amount of disallowed loss associated with the wash sale into the cost basis of the mutual fund shares going forward.
  • You should review your financial records to make these adjustments for the disallowed loss and to accurately calculate the cost basis of your mutual fund shares going forward. (This rule applied historically when mutual fund shares were sold and purchased in different brokerage accounts.)
S Corporations

What about cost basis reporting of mutual funds for S Corporations?

  • We are required to report sales of covered securities acquired by an S corporation after Dec. 31, 2011. We will report the gross proceeds on the sale, the associated cost basis and the holding period, along with all of the other required information on Form 1099-B, to the S corporation and to the IRS. We contacted our corporate clients asking them to verify their corporate status. According to the regulations, if an organization fails to certify their corporate status as a C corporation, we are required to tax report on these transactions as if the organization is an S Corporation.
Gifts and inheritances

What should I know about cost basis on mutual fund transfers or mutual fund gifts and inheritances?

  • Mutual fund transfers. If you request to move shares of investments between brokerage firms via either an Automated Customer Account Transfer (ACAT) or a non-ACAT transfer, your previous brokerage firm is required to provide updated cost basis information for all covered mutual funds and your new brokerage firm is required to accept and continue to track that information for you. This change was phased in for stock during 2011 and will apply to mutual funds acquired in 2012 and after. Some information may transfer between some broker dealers for noncovered securities as a service to you.
  • Mutual fund gifts and inheritances. For gifted or inherited covered mutual fund shares, we update our cost basis records in accordance with rules provided by the IRS. While our processes generally apply the IRS rules related to the basis of gifted or inherited securities, they do not take into account all possible situations that may affect the basis of your gifted or inherited securities. In some instances we will not be tracking and reporting cost basis information if we don’t have enough data to do it correctly. Therefore, it is important that you work closely with your tax adviser when transferring and selling assets acquired by gift or inheritance in order to have the most accurate basis information and communicate that information to us so that our reporting is accurate.
  • "We", "our" and "us" mean Ameriprise Financial Services, Inc. ("Introducing Broker" or "Ameriprise Financial") and/or American Enterprise Investment Services, Inc. ("Clearing Broker" or "AEIS").

    Ameriprise Financial and its representatives do not provide tax or legal advice. Consult your tax adviser or attorney regarding specific tax issues.

    All securities transactions are cleared by American Enterprise Investment Services, Inc., a wholly owned subsidiary of Ameriprise Financial, Inc. American Enterprise Investment Services is a member of the Financial Industry Regulatory Authority (FINRA), and Securities Investor Protection Corporation (SIPC).

    Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.

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