Cost Basis Reporting Requirement

What is cost basis?

Cost basis is the value paid for a security. It is usually the actual purchase price plus any fees and commissions. When you sell a security, the sale price, less the adjusted cost basis, results in the amount of gain or loss you generally must report for tax purposes. Cost basis may be adjusted after the original purchase by numerous events, including but not limited to wash sales or stock splits, dividend reinvestments and other events of the issuer during the time you owned the security. If you have held the security for more than 12 months, the gain or loss is long-term. Otherwise, the gain or loss is short-term. 

Long-term capital gains are currently subject to lower tax rates than the ordinary income rates applicable to short-term gains and other taxable income. Capital losses, whether short-term or long-term, are first used to offset any realized capital gains each tax year. If capital losses exceed capital gains, then up to $3,000 in losses may generally be used to offset ordinary income. Any additional losses may carry forward to the next tax year.

"Covered" vs. "noncovered" securities

Edward Jones and other brokerage firms must report cost basis to the IRS when "covered" securities are sold. We use Form 1099-B to report to clients and the IRS sales proceeds and cost basis for sales of “covered” securities.

“Covered” securities are those purchased after certain dates:

  • Covered shares of stock are those purchased on or after Jan. 1, 2011, that are not in a dividend reinvestment plan.
  • Covered mutual funds and shares of stock in a dividend reinvestment plan are those purchased on or after Jan. 1, 2012.
  • Covered fixed income securities are those designated by the IRS as being "less complex" and purchased on or after January 1, 2014. In addition, fixed income securities designated by the IRS as being "more complex" are scheduled to be covered when purchased after January 1, 2016.

“Noncovered” securities are those purchased before the applicable effective dates above.

Specifying which shares are sold

For equities and fixed income securities, Edward Jones uses the first-in, first-out cost method unless it was indicated at the time of the sale that specific shares were being sold. You can choose which shares of stock you would like to sell as long as you specify them before the trade's settlement date. Many considerations may affect which shares you should sell, so you should work with your tax professional and financial advisor prior to executing any sale of securities. You cannot change the selection after the trade settles.

Transfer of cost basis between firms

When covered securities are transferred between brokerage firms, regulations require the transferring firm to provide cost basis to the receiving firm. If cost basis is provided when you transfer covered shares to Edward Jones, it will be tracked by our system.

Cost basis for open-end mutual funds

IRS regulations require brokerage firms to calculate an average cost basis per share for noncovered mutual fund shares and a separate average cost basis per share for covered mutual fund shares. When noncovered shares are sold, the noncovered average cost per share will be used to determine cost basis. Covered shares will use the covered average cost per share.

More questions?

For tax questions, consult your tax professional. For investment-related questions, please contact your local financial advisor.

Important Information

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.

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