1099-B and Form 8949

[LuongPNguyen]

I sold a mutual fund in 2022 (with JP Morgan). Their 1099-B included cost basis for shares acquired in recent time (from 2012) but not for older shares (I believe this is due to the fund being with Washinton Mutual before JP Morgan took over). The form says "Report on Form 8949, Code X**-Either Part I or Part II with Box B or Box E checked". I do have old records and know what the basis was. Do I just ignore JP's form and enter the Proceed and Basis myself? Because I have no idea how to report on Form 8949 as suggested.

I also noticed that the basis for shares that were acquired in 2021 (short term capital gain) is less than what I paid to acquire those shares. I have no idea how JP Morgan determines the Basis. Can I make correction in Turbo Tax ? Thank you.

[HelenC12 · Accepted solution]

Yes, you can make corrections and report the correct cost and proceed amounts in TurboTax. Make sure you keep the documents on how you arrived at the entered cost and proceed amounts. 

Yes, you can ignore JP Morgan's Form 8949. TurboTax will generate Form 8949 when you enter your 1099-B forms.

Please see Do I need to fill out or mail in Form 8949?

Additional information:  Where do I enter or import a 1099-B?

[LuongPNguyen]

HelenC12,

Thank you for your help.  

For those old shares JP Morgan named it as "Unknown Term Gains or Losses". Since these shares were acquired before 2012 it must be Long Term Capital Gain. Am I correct?

Just for my own education how would Turbo Tax or the IRS determine the tax on Capital Gain if the basis is not known? Is it assumed as zero basis?

[GeorgeM777]

Yes, if your shares were acquired before 2012, the holding period is long term.  A holding period greater than one year--a year and a day--is considered long term.  One year or less is considered short term.

If you don't know your cost basis, TurboTax won't be able to determine whether you have a capital gain or a capital loss.  It is unlikely that the IRS will know your cost basis either.  Therefore, you will need to do the research and then enter your cost basis into TurboTax.  If you know, or can determine, the approximate time period when you acquired the shares, you can do an historical price search using a financial news site, such as Yahoo Finance, to get a good idea of the price you might have paid for your shares.  You are correct in that if you cannot determine your cost basis, the IRS may assume it is zero, and you will pay capital gains tax on your entire proceeds from the sale.  Thus, do your research and find the price you paid for the shares. 

@LuongPNguyen 

[LuongPNguyen]

Thank you George. I do have the paperwork when I opened the account and the quarterly statements so I can work out the basis for those old shares. I am just curious as what would happens if there is no information on the basis and it makes sense that the IRS could take the most conservation approach of assuming zero basis and the whole proceed would then become capital gain.

[GeorgeM777]

There are two issues to be concerned with here.  One is cost basis.  The second is being able to document your holding period.  If for some reason no one is able to determine cost basis, but everyone, including the IRS, agrees that the holding period is long-term, then the long-term capital gains tax rates apply.  The long-term capital gains rates are 0%, 15% or 20%, depending on your taxable income and filing status. To determine the tax, just multiply the applicable percentage rate by the capital gain.  The resulting number is the tax you will pay. 

Below is a chart reflecting the 2023 long-term capital gains tax rates based on income and filing status.  Note, if your taxable income is below the amounts listed on the 15% capital gain rate line, then the capital gain tax rate is 0%.  

@LuongPNguyen 

[LuongPNguyen]

George,

The tax table on Capital Gain is very helpful. I now have a slightly different question: can I see the actual calculation of the tax by Turbo Tax?. Right now Turbo Tax shows Taxable Income (line 15 of Form 1040) of 61746 and Tax (line 16) of 3528. The 61746 includes 27950 of  capital gain. It is clear that the tax amount of 3528 is NOT based on 61746 (a quick look at the IRS tax table shows that). Is there somewhere within Turbo Tax that shows exactly how the 3528 was calculated?

[wbraden3]

Regarding the basis of your shares from 2021.  Normally it's what you paid for the shares.  But, you may have received a non-taxable distribution from the company, which is regarded as a return of capital, and reduces your basis.

[GeorgeM777 · Accepted solution]

You may see a breakdown of your tax by reviewing the Tax Worksheets.  In TurboTax CD/download, select Forms mode (upper right) and in the left column select 1040/1040SR Wks.  With the Worksheet open, scroll down to the section entitled, Tax Smart Worksheet and review the numbers.

If you are using TurboTax online, you can view the Tax Smart Worksheet by selecting Preview my 1040 in the left margin.  To view your Form 1040, select Tools, (left margin), then select  View Tax Summary from the pop-up window, then select Preview my 1040 (in the left margin).  With your Form 1040 open, scroll down the page until you get to the section, Tax Smart Worksheet. 

Let us know what information you find after reviewing your Tax Worksheets. 

@LuongPNguyen 

[LuongPNguyen]

That is exactly what I need. I have learned a lot. Thank you.