The concept of cost basis is simple – it’s the price at which a security was acquired. However, because that price must be adjusted for factors such as commissions, reinvested dividends, stock splits and any other corporate actions, determining cost basis can be complex.
Cost basis is essential in determining how much of a taxable profit you’ve made – or how much of a taxable loss you’ve incurred – on the sale of a security. That profit or loss, in turn, can have an impact on your total tax liability.
Due to cost basis legislation that went into effect on January 1, 2011, Raymond James – along with all broker/dealers, banks, custodians and transfer agents – is required to record and report more detailed information on securities sales to the IRS. The below materials were created to help you understand the components and impact of each phase of legislation.
You can find a table and a detailed summary of each phase of the legislation below.
The legislation was rolled out in phases, as shown in the chart below. Covered securities are those acquired on or after the applicable dates outlined by the legislation. Securities acquired by clients before these dates are uncovered by the legislation. Broker/dealers are not required to report cost basis on uncovered securities to the IRS. However, taxpayers are responsible for accurate reporting of cost basis on covered and uncovered securities to the IRS on their tax returns.
|Covered Securities||Uncovered Securities|
|Broker/dealer vs. Taxpayer responsibility||Broker/dealers will report cost basis to IRS and taxpayer on Form 1099-B. Taxpayer will use Form 1099-B data in preparing their tax return filing for 2011 and following years.||Taxpayer will report cost basis to IRS.|
|Equities1||Acquired on or after January 1, 2011||Acquired prior to January 1, 2011|
|Mutual funds, dividend reinvestment plan (DRP) shares 2||Acquired on or after January 1, 2012||Acquired prior to January 1, 2012|
|Bonds3 and Options4||Acquired on or after January 1, 2014||Acquired prior to January 1, 2014|
|Variable Rate Bonds, Convertible Debt, Foreign Issued Debt, and other Bonds & Options not outlined in 2014 requirements5||Acquired on or after January 1, 2016||Acquired prior to January 1, 2016|
1 Equities include corporate stock, ADRs, UITs, ETFs, REITs (other than stock in a regulated investment company [RIC] or stock acquired in connection with a dividend reinvestment plan [DRP]). Internal Revenue Code section 6045(g)(3)(C)(i) provides that the applicable date is January 1, 2011.
2 For stock in a RIC (RIC stock) or stock acquired in connection with a DRP (DRP sock), 6045(g)(3)(C)(ii) provides that the applicable date is January 1, 2012.
3 Instruments for which yield and maturity may be determined under §§ 1.1272-1(b), (c), (d). **Factor bonds and short term debt will never be covered under cost basis legislation.
4 Select options to include options on specified securities (i.e. stock, index), on financial attributes of specified securities (i.e. interest rates or dividend yields), stock rights, warrants, and stock acquired through the exercise of compensatory option (i.e. incentive stock options and nonqualified stock options).
5 Bonds with stepped rates, STRIPs, instruments making payments in foreign currency, certain tax credit bonds, PIK bonds, foreign issues debt, bonds with terms unavailable for more than 90 days after a customer acquisition, debt issued as part of an investment unit and physical certificates held outside a clearing organization. Additionally contingent payment debt instruments and inflation indexed debt. Options that are issued as part of an investment unit.
Changes implemented in 2011:
Changes implemented in 2012:
Changes implemented in 2014:
Changes implemented in 2016:
If you have any questions regarding the new IRS cost basis information reporting requirements, please contact your financial advisor for assistance.
*Changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.