Zero cost basis transactions

[user645427]

Help.  Must review many zero cost basis transactions

 

[Mike9241 · Accepted solution]

in Turbotax, a cost must be assigned for every sale. if there is zero cost, for example, an option sold short that expires worthless a zero is required for the cost, not a blank.  the only way that may be available to avoid reviewing all these transactions is to enter summary totals on the 8949. then you mail in a download copy of the 1099-B with form 8453. read the instructions. it should be available in Turbotax but if not

https://www.irs.gov/pub/irs-pdf/f8453.pdf 

[user645427 · Accepted solution]

Thank you Mike9241 !

This looks like a workable solution that I hope to try next year (2023 taxes).  Your instructions make the process look simple.  I'm concerned about the execution.  These were not accidental omissions of a cost basis.  I've addressed the problem the hard way in years past.  This year I successfully completed the multi-step review of 294 zero basis transactions reported by Fidelity Investments in three marathon sessions.  The best solution to this situation would be if Turbotax would provide a way to deal with them en mass.  Surely there are others who have multiple zero cost basis transactions.  Please pass along this plea to Turbotax decision makers.

[nirlay]

  @user645427  @Mike9241 

 If I manually review all the entries with 0 cost basis, will TT allow me to e-file, or will it complain on final check? The option I am getting is "I don't want to make any changes to my cost basis right now" - this verbiage hewre seems to me that there will be trouble in future.

[RobertB4444]

Zero cost basis transactions are flagged by the TurboTax system because they're weird.  "I sold a thing I didn't have to pay for" is a little weird.  So it flags them.  You have to go through each one and say the basis is ok.  It's a little annoying.  But it's sensible precaution.

Once you've gone through each transaction and said it was ok, though, then you should be fine.  The same transaction won't pop up a second time.

@nirlay 

[nirlay]

@RobertB4444 thank you. Is there any way to bulk review the items with zero cost basis?

[RobertB4444]

I wish there was.  No, you have to go through them all.  If you imported from a CSV file instead of directly importing a 1099-B then you can go through the CSV file and change all the zeros to 0.01.  That won't change the tax return any but it will get past the zero basis checker.  But other than that there is no way to make a bulk change in this situation.

@nirlay 

[nirlay]

@RobertB4444. on another topic, what is your thought on negative proceeds ( and zero cost basis)

[HelenC12]

No negative numbers should be entered in either the cost basis or proceeds fields.   
  
If negative numbers have been imported through your brokerage statement, you will need to edit the entries to make the correction.

Please see this previously posted answer by Expert ToddL99

[user645427]

My situation is similar.  I have sent off a secure email to Fidelity on the subject.  See below.  I await their response.  The attachment referred to was a message string related to Expert ToddL99's answer. 

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Problem with the way Fidelity reports transactions on Form 1099-B.

I am an active trader.  I write covered calls and cash covered puts on equities.  These may expire worthless, or I may need to buy them back at a loss or a gain.

On the Form 1099-B, Fidelity reports these as zero cost basis transactions with proceeds being either positive or negative.  TurboTax (TT) rejects these entries.  Each year I have reviewed a massive number of these entries to assure the TT software that Fidelity has reported these transactions as zero basis entries.

I have now read the attached string of comments from the TT experts and other TT community members *.   It suggests that the problem is not with TT but with Fidelity's way of entering information on the Form 1099-B that I import to TT.

Please ask your tax experts to comment on my note and attachment.

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* Those at the bottom of the attachment are most on point.

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Thank you,

[nirlay]

I expect Fidelity will say that it is not their problem, they will point fingers on TT. 
if there is a written document in IRS that says that IRS will not accept negative proceeds then we have someone to chase. 

[user645427]

Here's Fidelity's reply.  In summary -- They're doing things properly including using zero cost basis and negative proceeds entries ("closing transaction cost") on the Form 1099-B.  See below.

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"Starting in 2014, regulations require the reporting of basis and proceeds for closed option positions on Form 1099-B. The IRS requirements can be confusing.

Premiums for exercised or assigned equity options adjust the basis or proceeds of the underlying security.

Closing transactions on long options are reported with cost basis of the premium paid to open and proceeds of the premium received to close.

Closing transactions on short options are reported with cost basis as zero and proceeds as the difference between the opening proceeds and the closing transaction cost.

Open index option contracts are subject to mark-to-market reporting at year-end. As a result, unrealized gains and losses will be reported to the IRS on the Form 1099-B Tax Reporting Statement.

Additional information about this tax reporting requirement can be found in IRS Publication 550."

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[nirlay]

How can we have TT fix their issues, or is there any other software that does this properly? I think TT has a monopoly and hence not bothered about improving customer experience. May be some CPA / tax Attorney should weigh in here, on what the next steps could be.

[user645427]

Fidelity offered me an opportunity to give feedback on their info that they provided above.  My response was,"Regarding zero cost basis transactions reported on Form 1099-B, Fidelity and TurboTax need to work together to resolve the difficulties that they are causing their clients at tax preparation time."

[user645427]

When I did my 2023 taxes in 2024, TT accepted the zero basis entries without me having to review and confirm each one that was downloaded into TT from Fidelity.  I was prepared to do hundreds.  From your message it appears that the problem is back.  I'll have to allot several hours more this year and will need to start soon.  Thanks for the heads up.