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 loss1 when a nonqualified2 investment is sold. The IRS now requires us to track and report to you and the IRS the cost basis, holding period, and certain other tax information on the sale of “covered” securities for the tax year in which they are sold.

1See Question “What’s the difference between short-term, long-term and ordinary gain or loss?” in the Tax Reporting section, for more information.
2Nonqualified refers to investments that are not part of an IRA or other retirement plan.

General Information

  • 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, accrued discounts and premiums (for bonds), returns of capital and corporate actions, where applicable. Other adjustments can apply.
  • Tax lots. Each time you purchase a security on the same day for the same price (same trade) the new position is considered a tax lot. Each new position is a separate tax lot for tax purposes. Cost basis is generally tracked by tax lot. 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 donation recipient), and its holding period. This is how any tax liability for the sale of the investment is determined.
  • Each time you sell investments, if you are not selling the entire position we will identify which investments 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 investments.
  • You may 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 investments. For more information please see the “Tax lot method” section below.
  • Being smart about how cost basis plays into investment decisions can help you manage your tax liability over time. Reach out to your Ameriprise financial advisor and tax adviser if you have questions about your specific situation.
  • Note: Cost basis rules apply to nonqualified accounts, so this is not relevant for IRAs or qualified retirement plans.

“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 Tax Law and IRS regulations.

We are required to provide you and the IRS with information related to the proceeds received on the sale of all securities. However, we are only required to provide cost basis and holding period information to you and the IRS on sales and dispositions covered securities.

Securities become covered based on the investment type and the date purchased. This means that investments you purchase on or after the phase in date for that investment are covered by the requirements. However, different lots of the same investment that you purchased prior to the phase in date for that investment will remain noncovered3.

  • 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.

This table provides a description of the investment types and the dates they are considered covered under guidance of the law and IRS regulations.

Law/Regulation phase in date Covered investments
Purchased on or after Jan. 1, 2011
  • Equities4
  • Some non-traded Real Estate Investment Trusts (REITs) without dividend reinvestment programs
  • Some exchange-traded funds (ETFs)
  • Unit Investment Trusts (UITs) structured as regulated investment companies (RICs)
Purchased on or after Jan. 1, 2012
  • Mutual Funds (Regulated investment companies) including open-ended and closed-end funds
  • Stocks
  • Non-traded REITs in dividend reinvestment plans (DRPs)4
  • Covered investments acquired by an S corporation (other than a financial institution)
Purchased on or after Jan. 1, 2014
  • Debt instruments with less complex tax treatment: Corporate, Treasury, and municipal bonds and other debt instruments, with a fixed interest rate, payment schedule, and maturity
  • Options: option contracts written (short) or purchased (long) on covered investments or financial attributes of covered investments
  • If you purchased bonds at premium or discount you are able to make elections on our system which may affect the earnings on your bond and the tax character of your bond income. For more information see “What are bond elections?” below.
Purchased on or after Jan. 1, 2015
  • There were no additional securities covered in tax year 2015. However, there were regulation changes affecting covered bonds. For more information see “What are bond elections?” below.
Purchased on or after Jan. 1, 2016
  • Debt instruments with more complex tax treatment, such as:
    • Contingent payment debt instruments (timing or amount of interest or principal is uncertain, includes Structured Products)
    • Convertible bonds
    • Non-dollar denominated debt, and debt issued by foreign (non-U.S.) entities, including “Yankee Bonds
    • Inflation index bonds
    • Payment-in-kind bonds (PIK)
    • Preferred securities treated as debt for tax purposes
    • Stripped bonds and stripped coupons
    • Tax credit bonds
    • Variable rate and stepped rate bonds
  • Debt instruments issued with an option or other property as part of an investment unit
  • Debt instruments for which terms are not reasonably available to brokers within 90 days of acquisition by the client
  • Debt instruments evidenced by a physical certificate not held by a custodian or clearing agent (physical debt)
  • Ameriprise® Certificates

For definitions of the various types of investments listed above see the next questions.

3See “What should I know about cost basis and gain/loss information on securities acquired prior to cost basis reporting requirements?” below.
4If 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.

Less complex debt instruments refer to tax treatment as referenced in IRS regulations and include many debt instruments with less complex tax treatment. It would not define debt instruments which FINRA or other regulators may deem a complex security or product.

The tables below provide details about the less complex debt instruments and options that were included in the 2014 cost basis regulations.

Bonds

Investment type Description
Bond with a single fixed payment schedule for which a yield and maturity can be determined
  • This is a plain vanilla bond, with a fixed (non-variable) interest rate, fixed term, and a stated maturity date
  • Example: Corporate bond with fixed interest rate and fixed maturity date
Bond with an alternate payment schedules for which a yield and maturity can be determined
  • Debt with a mandatory sinking fund provision
  • Debt with at least one payment subject to a contingency or option that is very likely to occur or very likely not to occur
Bond for which the fixed yield of the debt instrument can be determined
  • Debt with at least one contingent payment but a fixed yield
  • For example, callable bonds if issued at par and callable at par

Options

Investment type Description
Equity Options
  • Option on a single stock
  • Example: Option on Apple stock
Non-Equity Options
  • Options on a broad-based stock index or debt index
  • Example: Option on S&P 500 Index
An option on financial attributes of specified securities, such as interest rates or dividend yields
  • Examples: Options on an interest rate index, such as LIBOR, or the 30-year Treasury yield, or options on stock market volatility
Warrants
  • Options to acquire stock from or sell stock to the issuer
Rights
  • A shareholder’s option to acquire additional stock

More complex debt instruments refer to tax treatment as referenced in IRS regulations and include many debt instruments with more complicated or complex tax treatment. It would not define debt instruments which FINRA or other regulators may deem a complex security or product.

The tables below provide details about the more complex debt instruments that are covered beginning in 2016 and their tax reporting implications.

Investment type Description Examples
Variable rate (and stepped rate) debt instrument (VRDI) Bonds and debt instruments with an interest rate that changes (or could change) over time. Examples: Floating rate municipal bonds, corporate bonds and agency bonds. Ameriprise Step-Up Rate Certificates
Convertible bonds Bonds that can be converted into stock or into cash or other property of equal value. Examples: Reverse convertible securities, Mandatory exchangeable securities
Stripped bonds and stripped coupons Bonds where one person holds the right to receive principal payments and another person holds the right to receive interest payments. Example: US Treasury STRIPS
Contingent payment debt instruments (CPDI) Debt with one or more contingent payments. Examples: Bonds and CDs with payments determined by reference to the value of an asset or index. Many Structured Products
Inflation indexed bonds Debt that adjusts principal for inflation or deflation. Example: TIPS (Treasury Inflation Protected Debt)
Payment in-kind bonds (PIK) Bonds that pay “interest” with additional bonds instead of cash
Tax credit bonds A debt instrument that, at one or more times in the future, entitles a holder to a tax credit Potentially Build America Bonds
Foreign issued bonds or bonds paying in a foreign currency A payment of interest or principal in a currency other than the U.S. dollar Example: Bonds making interest payments in Euros
Physical certificates Bond evidenced by a physical certificate unless such certificate is held by a securities depository or by a clearing organization Example: Bearer Bonds
Certain Preferred securities Preferred securities taxable as debt in the prospectus Example: Preferred securities that trade with the accrued interest
A debt instrument that is issued as part of an investment unit Debt issued together with other property or embedded derivatives, such as options, stock rights, or warrants Example: Reverse Convertible securities
Debt without a prospectus, offering memorandum, or other description of the debt’s terms & conditions A debt instrument for which the terms of the instrument are not reasonably available to the broker within 90 days of the date the debt instrument was acquired by the customer Example: Private Debt

“Noncovered” is a term used to identify those investments that are not subject to the required cost basis tracking and reporting. These may be investments purchased prior to the regulation phase-in date for the specific type of investment or investments currently excluded from cost basis reporting regulations (see below).

While we may provide you with cost basis and holding period information for noncovered securities, if we have it available, it is for informational purposes only and we will not report it to the IRS.

Investments currently excluded from cost basis regulations:

  • Debt instruments secured by a pool of debt instruments that are subject to prepayment of principal, including:
    • Certain Asset-Backed Securities (ABS)
    • Mortgage-Backed Securities (MBS)
    • Real Estate Mortgage Investment Conduit (REMIC)
  • Employee stock options (once exercised the stock itself is covered)
  • Grantor Trusts
  • Master Limited Partnerships
  • Money market funds (including floating rate NAV)
  • Options on commodities (gold, oil, metals, grains, etc.)
  • Options on foreign currency
  • Pre-paid forward contracts (including many Structured Products)
  • Short-term debt instruments - fixed maturity date not more than one year after the issuance date
  • Brokers and investment issuers, like real estate investment trusts (REITs) and mutual funds, did not report cost basis or holding period information to the IRS for securities purchased prior to the cost basis regulation phase-in dates. See General Information section above “What investments are covered by the cost basis tax rules and when?
  • Individual taxpayers continue to be responsible for tracking the cost basis of their noncovered investments and for calculating and reporting the holding period and any realized gain or loss on the sale of those investments. Taxpayers are generally required to report this information in prior years on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets.
  • 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 securities 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, as necessary.
  • For data related to noncovered investments, including all data for 2010 and prior tax years, it is important to verify this information 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 adjustments prior to cost basis reporting start dates for various investment types. Please consult with your tax adviser in those situations. We also cannot verify cost basis information obtained through corporate acquisition of other brokers (such as H&R Block Financial Advisors Inc. and J. & W. Seligman & Co. Inc.).

All nonqualified accounts subject to Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, 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)
  • Corporations, government entities, exempt organizations, financial institutions, etc. are not subject to cost basis reporting changes.
  • Retirement and education savings accounts (including inherited accounts) listed below 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.
    • IRAs
    • Roth IRAs
    • SIMPLEs
    • SEPs
    • SAR-SEPs
    • 403(b) / TSCAs
    • 401(k)s
    • 401(a)s
    • Coverdell Education Savings Account (CESA)
    • 529 Plans
    • ABLE accounts (Achieving a Better Life Experience Act of 2013)

If you purchased a bond at premium or discount on or after Jan. 1, 2014, you can make elections related to these bonds which may affect the earnings on your bonds and the character of your bond income. Elections also affect your cost basis and tax reporting. While the elections have previously been available to taxpayers, the requirements for brokers to include them, track them, and report additional information to the IRS were new for 2014. These elections are:

When to recognize accrued marker discount

  • Broker default – at sale or redemption
  • Election – Included in income annually as accrued (current election)

Which accrual calculation method is used for market discount

  • Broker default - Constant yield(multiplies the adjusted basis by the yield at issuance less the coupon)
  • Election - (ratable, applies a constant dollar amount for each day the security is held)

Whether or not to amortize bond premium

Each bond election has an associated due date by which it must be made. Once you choose an election (as opposed to the default) it is generally irrevocable6.

After the election due date, you will be locked-in to either the default or your election. Your Ameriprise financial advisor can help answer questions regarding election due dates.

An IRS required broker default will be used whenever you do not make an alternate election.

5The IRS required broker default market discount accrual method was changed to constant yield for bonds purchased as of Jan. 1, 2015. Constant yield was also the broker default accrual method we used for bonds purchased prior to Jan. 1, 2014. Only bonds purchased between Jan. 1, 2014 and Dec. 31, 2014 used straight line accrual default method, per IRS rules.
6Some elections may be revoked, up to the election due date only, with written approval from the IRS Commissioner.

  • 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.

Tax reporting

Your tax package will include a Forms 1099-B, Proceeds From Broker or Barter Exchange Transactions, for any account that has a sale or redemption of securities (other than money market funds) during the year.

Transactions will be reported on Form 1099-B in one or more of the following sections of holding period and covered indicator combinations:

  • Short-Term/Covered
  • Short-Term/Noncovered
  • Long-Term/Covered
  • Long-Term/Noncovered
  • Undetermined Term

Most option closing transactions have cost basis and holding period reported to you and the IRS on Form 1099-B. Option premium will be reported as an adjustment to basis or gross proceeds, depending on the option (put or call) and the taxpayer’s position in the option (writer or holder).

The table below illustrates reporting requirements for covered vs noncovered investments with short, long or undetermined holding periods:

Covered indicator and holding period IRS reporting requirements

Covered Investments:

  • Short-Term holding period
  • Long-Term holding period

Reported to the IRS:

  • Proceeds
  • Date of sale
  • CUSIP
  • Description
  • Applicable checkbox on Form 8949 (Sales and Other Dispositions of Capital Assets)
  • Quantity
  • Tax withholding (backup withholding)
  • Cost basis
  • Type of gain/loss: short-term, long-term or ordinary
  • Date of acquisition
  • Whether a loss was disallowed due to a wash sale
  • Market discount (for bonds)
  • Whether a security is a collectable

Noncovered Investments:

  • Short-Term holding period
  • Long-Term holding period
  • Undetermined holding period7

NOT reported to the IRS:

  • Cost basis
  • Type of gain/loss: short-term, long-term or ordinary (applicable checkbox on Form 8949 not reported)
  • Date of acquisition
  • Whether a wash sale was disallowed
  • Market discount (for bonds)

Reported to the IRS:

  • Proceeds
  • Date of sale
  • CUSIP
  • Description
  • Quantity
  • Tax withholding (backup withholding)

7We are not able to determine cost basis and/or holding period information for transactions in the “Undetermined” holding period section based on our records to classify the tax lots as short-term or long-term. These will typically include principal payments, commodity/royalty trusts or tax lots for which we do not have cost basis information. For these transactions you will need to use your personal records to complete your tax returns.

Gain or loss from a sale or disposition of an investment in your nonqualified account may be treated as short-term or long-term capital gain or loss, depending on the length of time you own the investment (holding period), with some exceptions.

  • Holding period
    • Wash sales: See “Wash Sales” below to see how wash sales affect holding period
    • Gifts: Holding period generally includes the donor’s holding period if the donor’s basis is used in calculating the gain/loss on the sale
    • Inheritance: Holding period is long-term, regardless of how long you and/or the decedent held it
    • The holding period may need to be suspended in certain circumstances for example, when stock is held both long and short. Please work with a qualified tax professional to determine if this is appropriate for your specific situation.
  • Short-term capital gain or loss
    • Generally applies to investments owned for one year or less
    • Net gain (gain offset by losses) is taxed at ordinary income tax rates
  • Long-term capital gain or loss
    • Generally applies to investments owned for more than one year
    • Net gain (gain offset by losses) is generally taxed at lower rates: 0%, 15%, 20%, with some exceptions for collectibles gain (up to 28%), unrecaptured section 1250 gain from investments in real estate (up to 25%), and certain small business stock gain (0% if held for more than five years)
  • Ordinary gain or loss
    • Gain or loss may be treated as ordinary under circumstances such as:
      • Market discount (if any) realized on the disposition of market discount bonds
      • Gains, and certain losses, on a contingent payment debt instrument
      • Proceeds attributable to accrued interest on bonds
      • Proceeds attributable to depreciation recapture (IRC section 1245)
      • Gains and losses from hedging transactions
      • Foreign currency gains and losses
    • Net gain (gain offset by losses) is taxed at ordinary income tax rates
    • If we are reporting your gain or loss as ordinary, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, will display “ordinary gain/loss” in the Additional information column.
    • Please work with a qualified tax professional to determine how to report ordinary gains or losses on your tax return.
  • Mixed gain or loss
    • Gain or loss can be a mixture of short-term, long-term, and/or ordinary gain or loss, such as gain or loss from “section 1256 contracts” (60% long-term, 40% short-term)
  • Tax reporting
    • See “How is cost basis shown on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions” for tax reporting related to gains and losses.
  • Additional references:
    • IRS Publication 544 (Sales and Other Dispositions of Assets)
    • IRS Publication 550 (Investment Income and Expenses)
    • IRS Form 8949 (Sales and Other Dispositions of Capital Assets)
    • IRS Form 1040 Schedule D (Capital Gains and Losses)
  • If you sold multiple tax lots (for example, because you purchased the stock on different days) for the same security with the same holding period (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, Proceeds From Broker and Barter Exchange Transactions, 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., (AEIS)8 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.

8AEIS is a subsidiary of Ameriprise and is the clearing broker responsible for trade execution, settlement, record keeping and reporting for nonqualified Ameriprise brokerage accounts.

  • You may have purchased or acquired securities 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, Proceeds From Broker and Barter Exchange Transactions, depending on whether the securities were held long-term or short-term and whether the securities 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 adviser or review the IRS instructions for the applicable tax year of Form 1040 (Schedule D) Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets, on how to report these tax lots.

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 8949. For more information see the “Wash sale” section below.

Beginning in October, 2016, the Securities and Exchange Commission (SEC) money market fund reform rules state that institutional money market funds are now required to have a floating Net Asset Value (NAV)9. This means that they are now more likely to have gains and losses resulting from share redemptions in nonqualified accounts.

What this means to you:

  • Institutional money market funds are exempt from tax reporting on share sales and redemptions and from wash sale rules
  • Ameriprise will not issue Form 1099-B, Proceeds From Broker and Barter Exchange Transactions for redemptions from these investments
  • However, we will provide cost basis and gain/loss information to you on the supplemental statement “Proceeds Not Reported to the IRS”
  • As a default, Ameriprise will use the average cost tax lot method to determine your cost basis
  • Alternatively, you can request the “NAV method”10

Consult your financial advisor to determine how the new money market rules affect your money market fund investments, and work with your tax advisor to track cost basis and wash sales and to report gains and losses, if applicable.

9Government and retail money market funds will generally maintain a stable $1 NAV.
10NAV method requests must be submitted in writing to your financial advisor.

  • One of the most common reasons you might receive an updated 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 will send updated tax reporting to you and to the IRS. If you own multiple securities subject to reclassification, you may receive multiple updated tax statements.
  • Commonly these reclassifications have an updated Form 1099-DIV, Dividends and Distributions.
    • For example, a reclassification could change a long-term capital gain distribution, qualified dividend or ordinary dividend into a return of capital. A mutual fund could also reclassify tax-exempt income into taxable income. Such a change would result in an updated Form 1099-DIV.
  • 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 an updated Form 1099-B. This can occur if the underlying security was sold during the year but after a dividend subject to the reclassification was paid. 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 an updated Form 1099- B if cost basis is reported to the IRS.
  • 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, if a reclassification changes the cost basis of a noncovered security, we will not send updated Form 1099-B tax information to the IRS. However, we will provide you with an updated informational statement that includes the updated cost basis due to the reclassification.

Tax lot method

When determining cost basis and holding period for the sale of investments in your account, you have the option to use a default tax lot method based on account type or you may be able to select a different tax lot method.

The tax lot method determines which tax lots will be assigned to the sale of covered and noncovered investments if you are not selling the entire position. It is, in other words, the rule we use to determine which covered and/or noncovered tax lots to sell first. We have set default tax lot methods based on your account types and by investment types within those accounts which we will follow unless we get other instructions from you.

Critical: 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).

The table below provides the default tax lot methods by Ameriprise product and account type.

Your account type: Open-ended mutual funds Closed-ended mutual funds, Equities11, bonds and options
Columbia mutual funds held outside of a brokerage account (account numbers ending in 002)12 Average cost13 Not applicable
Ameriprise Brokerage, Strategic Portfolio Services (SPS) Advantage or Strategic Portfolio Services (SPS) Advisor15 Average cost13 First In — First Out (FIFO)14
Ameriprise Select Separate15 Highest In — First Out (HIFO) HIFO
Ameriprise Active Portfolios investment, Vista Separate, Investor Unified and Access Accounts12 Average cost16,17 HIFO

11Equities include stock, preferred stock (convertible to common stock), real estate investment trusts (REITs) and exchange-traded funds (ETFs).
12In December 2016 Columbia mutual fund accounts ending in account number 002 were transferred to Ameriprise brokerage accounts ending in account number 133.
13Average cost is the most common method we have available for mutual funds and the only method we have available for mutual funds held outside of a brokerage account (accounts ending in 002). Average cost is calculated separately for the noncovered, covered, and/or gifted shares (if any).
14If the FIFO method is used, we will redeem the older noncovered shares before the newer covered shares.
15Only the SPS Advantage and SPS Advisor accounts within Managed Products have the option to use the specific identification tax lot method. The specific identification tax lot method is not available for all other Managed Accounts (e.g. Active Portfolios, Select Separate Accounts, etc.) For certain of those accounts clients may advise the investment manager that they generally wish to tax harvest gains or losses.
16For 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.
17For non-discretionary accounts, you can use the Ameriprise “default tax lot method” based on the assets 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.

  • We support the following tax lot methods:

    • Average cost18: Uses the following calculation19:

      Average Cost = (Total cost of all shares for a specific mutual fund) / (Total number of shares for this mutual fund held in your account) Holding period is FIFO.

  • The tax lot methods below are only available in an Ameriprise brokerage account (accounts ending in 133)

    • 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 based on their purchase date and purchase price.20
    • For Institutional Floating Rate Money Market Funds: NAV method is available upon written client request.

18Average cost is available as an election for dividend reinvestment programs.
19When a mutual fund account has both covered and noncovered shares, average cost will be calculated separately for the noncovered and covered shares. A third calculation can be done for shares that were acquired as a gift.
20Only the Strategic Portfolio Service (SPS) accounts within Managed Accounts investments have the option to use the specific identification tax lot method. All other Managed Accounts investments must use the default method shown in the table above.

  • If you want to continue to use our default tax lot method, as listed above, no action is required.
  • If you and your tax adviser determine that a change to the tax lot method 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 made21.

21Special rules apply if you’re using average cost method for stocks with dividend reinvestment.

  • If you want to continue to use our default tax lot method, as listed above, no action is required.
  • If you and your tax adviser determine that a change to the tax lot method 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 (see above). In the past the only option that was available to clients who held mutual funds in an account that had an account number ending in 002 was the average cost method. In December of 2016 Columbia mutual funds ending in 002 were transferred to Ameriprise brokerage accounts ending in 133 and now have all of the IRS permissible tax lot methods available.
  • We will adjust the basis for events such as wash sales, corporate actions, returns of capital, etc., if appropriate.
  • 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 future22. 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)
    We continue to measure the holding period of the shares based upon when they were purchased.

    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

22Historical information may not be accurate depending on how and when the account was established.

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 do one of the following:
    • 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.
    • Acquire substantially identical stock or securities for your individual retirement arrangement (IRA) or Roth IRA.
  • The wash sale rule can also be triggered by multiple purchases of the same security on the same day, if one of those tax lots is sold within 30 days for a loss. A broker may have to make multiple purchases in one day to fill a large order.

Note: Wash sale rules don’t apply if multiple purchases of a single security required to fill a single order are purchased on the same day, or if only one purchase price is quoted.

  • Cost basis regulations for covered securities23 require American Enterprise Investment Services Inc. (AEIS) to track wash sales for identical covered securities (same CUSIP) within the same taxable account only.
  • You are responsible for tracking wash sales if:
    • The purchase and sale occurred in different accounts, or
    • The covered securities purchased and sold were not identical (different CUSIPS), but were substantially identical, or
    • Either the securities purchased or the securities sold were non-covered securities24
      • 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.
  • Note: Ameriprise Financial is not required to apply the wash sales rule for accounts owned by securities dealers25 who have submitted a valid and timely mark-to-market election under Section 475 of the Internal Revenue Code. We must receive your notification of the election and confirmation that the account from which the securities are sold contains only securities subject to the election.

23 See “What investments are covered by cost basis rules and when?” in the General Information section for information.
24 See the FAQ below that describes when Ameriprise Financial applies the wash sale rules across certain covered/noncovered mutual funds.
25 As defined in the statute a securities dealer is generally someone who regularly purchases securities from or sells securities to customers in the ordinary course of trade or business.

  • 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. When the wash sale is caused by a purchase in an IRA, the basis of the IRA isn’t increased.
  • Holding period — holding period for the replacement security includes the holding period of the security sold.
  • The disallowed loss amount is reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions on Line 1g (Adjustments).

For certain mutual fund situations the disallowed loss and cost basis adjustments will not be calculated for wash sales and the disallowed loss will not appear on your tax statements. You will need to review your financial records to make these adjustments yourself for the disallowed loss and to accurately calculate the cost basis of your mutual fund shares going forward for the following:

  • Columbia mutual fund accounts (accounts ending in 002, held outside of an Ameriprise brokerage account)26:
    • A wash sale that occurs between your covered and noncovered mutual fund shares held within the same account27
    • Sale and purchase transactions that occur with the same mutual fund in different mutual fund accounts
  • Mutual funds held within an Ameriprise brokerage account or Managed Accounts investment (account numbers ending in 133)
    • Sale at a loss, and a purchase transaction for the same mutual fund within 30 days that occur in different brokerage accounts

26In December 2016 Columbia mutual fund accounts ending in account number 002 were converted to Ameriprise brokerage accounts ending in account number 133.
27The 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 multiple different cost basis numbers, brokers are not required to calculate wash sales across the two categories. A third average cost basis calculation can be done for shares that were acquired as a gift. However, for mutual funds within an Ameriprise brokerage account (accounts ending in 133) we will calculate wash sales between covered and noncovered shares.

Short sales can result in wash sales in some situations:

Short-against-the-box:

A short sale of securities that you hold in your account results in a wash sale if you close the short sale (buy to close) at a loss and within 30 days of the sell to open transaction you purchase substantially identical securities.

Other short sales

Short sales of securities that you DO NOT hold in your account result in a wash sale if you:

  • Close the short sale (buy-to-close) at a loss, and within 30 days of the buy-to-close and then you either
  • Open another short sale of substantially identical security or
  • Sell substantially identical securities

For information about tracking wash sales within the same or different accounts see “What are the cost basis regulation requirements for brokers to track wash sales?” above.

  • Investments that are acquired through gifting, inheritance, or tax free exchange do not trigger the wash sale rule.
  • However, repurchasing substantially identical securities within 30 days of the sale of such securities at a loss will result in a wash sale.

For information about tracking wash sales within the same or different accounts see “What are the cost basis regulation requirements for brokers to track wash sales?” above.

Short sales

For more information, please refer to instructions for 2016 Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, and IRS Publication 550, Investment Income and Expenses, available on irs.gov, or speak with a tax adviser.

Note: Short positions in options (written options) are not considered short sales for these purposes, and are subject to different tax reporting rules.

  • The Internal Revenue Service (IRS) requires broker dealers to report buy-to-close transactions for short sales on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
  • For short sales opened after Jan. 1, 2011:

    Example: You open a short sale on December 23, 2015, selling 1,000 shares of ABC Corp. for $28,000.00. You close the short sale on April 9, 2016, by purchasing 1,000 shares of ABC Corp. for $26,000.00. You will receive Form 1099-B for tax year 2016 to report the closing transaction with the following information for this covered option:

    • 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 you deliver the security to satisfy the short sale obligation and the short sale is closed.
    • Proceeds
    • Date of sale
    • Description
    • Applicable checkbox on Form 8949 (Sales and Other Dispositions of Capital Assets)
    • Quantity
    • Tax withholding (back-up withholding)
    • Cost basis
    • Holding period
    • Date of acquisition
    • Whether a loss was due to a wash sale

S Corporations

  • We are required to report sales of covered securities acquired by an S Corporation starting on Jan. 1, 2012.
  • We will report the gross proceeds on the sale, the associated cost basis, the holding period and the wash sale disallowed loss (if any), along with all of the other required information on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, to the S Corporation and to the IRS.
  • Corporate clients (non-S Corporations) must complete IRS Form W-9, Request for Taxpayer Identification Number and Certification, to provide their federal tax classification and claim an exemption from back-up withholding, if applicable.
  • Any entity that fails to provide Form W-9 may be subject to Foreign Account Tax Compliance Act (FATCA) withholding and on interest and dividends and back-up withholding on sales.

Gifts and inheritances

  • Transfers: If you request to move securities 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 securities 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.
  • 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.