It depends. First is the explanation of the difference between covered and noncovered shares. Next, is the difference between long term and short term holding period.
In 2008, Congress passed legislation which required brokers to report the cost basis for securities and mutual funds to both the investors and the Internal Revenue Service (IRS), effective tax year 2011
the difference between covered and noncovered shares is who keeps track of the cost basis.
- For covered shares, the financial organizations are required to report cost basis to both you and the IRS.
- For noncovered shares, the cost basis reporting is sent only to you.
Holding Periods:
- Long term: held more than one year (one year plus one day) - received special capital gain tax treatment
- Short term: held one year or less - taxed at your ordinary rate of tax
How to Report:
- For any sale where the cost basis is not reported to the IRS (noncovered) you must know the cost of the item sold and how long you owned it. The finance company my have provided this to you even if they didn't report to the IRS.
- For any sale where the cost basis is reported to the IRS you need only to know when the item purchased and sold.
- If you sold securities in one sale that were purchased at different times you can select 'Something other than a date', then select 'Various'
- You must still select the holding period for all sales
Take aways: If your security was held with the same financial agent the entire time you owned it, then you can rely on their information. If you transferred any of your holdings to another broker at any time, only you will know the cost. Cost includes any reinvested dividends as well.
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