New cost basis reporting requirement for sale of securities purchased after 2010
You may have heard about a new law that will change how the financial-services industry reports cost basis on sold securities. Beginning with year-end 2011 tax reporting, all brokerage firms must track, adjust and report cost basis data for certain sold securities on clients’ 1099-B forms and directly to the IRS.
The requirement will phase in gradually, applying to:
• Stocks purchased on or after Jan. 1, 2011;
• Mutual funds purchased and purchases through a dividend reinvestment plan on or after Jan. 1, 2012;
• Other securities to be designated by the IRS (including fixed income) purchased on or after Jan. 1, 2013.
The requirement does not apply to any securities purchased before 2011, no matter when they are sold.
What Does This Mean for You? For years, Edward Jones has included a “Cost Basis Summary” with your year-end 1099- B, listing cost basis for any securities you sold during the tax year if we had the information necessary to calculate your cost basis–and we will continue to do so. Currently, this information is not reported to the IRS; it is the investor’s responsibility to track and report.
Beginning in 2011, if you sell a security covered by the new requirement, you will also see the cost basis listed directly on your year-end 1099.
For example, if you were to purchase a stock in 2011 and then sell it in 2012, your 2012 Form 1099-B will report the stock’s cost basis. We will also report this information to the IRS.
Also, if you identify specific shares when selling a security, you will need to specify which were sold by the trade’s settlement date. This will enable us to properly identify the correct cost basis when the shares are sold. If you do not specify your shares, we will use our firm’s default methods of first-in firstout for stocks and average cost for mutual fund shares.
We want you to know that Edward Jones will be prepared to deliver accurate information to the IRS. We will keep you informed about these requirements as they get closer to taking effect.
If you have questions about how this may impact your tax situation, please consult your tax professional. For investment related questions, please contact your Edward Jones financial advisor.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.