1099 Line Item: Reconciliation and Cost Basis Adjustment?

[Xxxlittle]

Form 1099 (from Vanguard) includes an entry under “RECONCILIATIONS, FEES, EXPENSES AND EXPENDITURES”: Other Receipts & Reconciliations- Basis adjustments -85.61

And, a note later in the 1099: ”-85.61 Total Increase to cost basis”

This is related to the fact/situation where the investment account received a dividend from a mutual fund that was $85.61 LESS than the dividend amount declared on the 1099. So, consistent with the mutual fund holding back $85.61 to plow back into the fund capital/operations.

Question #1:

I think that the cost basis should INCREASE by $85.61 since the amount invested went up, not down. So, the 1099 note really means that there was a reconciliation of negative $85.61 (because cash received was less than it should have been) with the correct action being to record an “Increase to cost basis”. Agreed?

Question #2:

Vanguard does not include in Holdings any $85.61 cost basis adjustment, up or down. Investor must keep these records, I suppose. So, subsequent sales transactions will not have the true cost basis (including $85.61 adjustment) on that 1099. How does one report to the IRS a cost basis number that differs from the 1099?

Thanks.

[DianeW777 · Accepted solution]

Question #1: Yes, it should be an increase to the cost basis.

Question #2: You will go to the specific sales in question and make an adjustment to the cost basis manually for each transaction where you need to adjust it.

This is a very common action because the brokerages do not always know the full cost basis of your holdings.  It's the reason it's so important for you to retain your detailed records for buys and sells of your investments.