Adjusting Cost Basis for a mutual fund sale with both covered and noncovered shares

[DH21]

Hello all,

I sold a long-term mutual fund holding in 2020, and the 1099-B reported the sale in 3 parts: the short term covered shares (which included the broker-calculated cost basis and checked Box A), the long-term covered shares (which included the broker-calculated cost basis and checked Box D) and the long-term non-covered shares (for which the broker calculated NO cost basis and checked Box E). The "average cost" basis was used by the broker for the two covered sales.

I have all the purchase records for this fund, including the years that include the "noncovered" shares on the 1099-B. I believe that the broker, because it did not use the complete purchase history, did not correctly calculate the cost basis on the two covered sales. Those two cost basis numbers are both somewhat higher than they would be if the broker had used my entire purchase history for its average cost calculations.

My question: should I correct the cost basis for both of these "covered" sales and add the correct cost basis for the "noncovered" sale in my TurboTax filing? One alternative would be to leave the existing broker-calculated cost basis numbers intact, and then input a cost basis figure for the noncovered shares that would net out to the correct total gain across all three of these reported sales.

I have not changed or corrected any 1099-B information previously, so I am asking this question to see if anyone knows if this type of correction would be considered a "normal" and proper adjustment on a tax filing. I am confident of my self-calculated cost basis figures, but since they differ from the broker-calculated and broker-reported figures I am raising the issue. Thank you!!

[Mike9241]

if there were previous sales of this mutual fund for which you used the average cost basis, that is the method that must be used for all future sales. . when you set up the account you may have indicated on the paperwork for the broker to use average cost for sales. 

none the less, if there have been no previous sales of this fund using the average cost method you can use the FIFO method. However, then FIFO must be used for all future sales of these shares with an exception, (if the average cost has never been used) then instead of FIFO you can tell the broker to sell xxx shares purchase on XX/xx/xx  (specific identification of shares you still hold) 

[NCperson]

the broker is going to send the covered cost basis data to the IRS; the non-covered cost basis data is not set to the IRS.  Why change what the IRS is going to have? 

you can adjust the cost basis of the non-covered sales to match your records since nothing is sent to the IRS and you would want the correct cost basis to correctly reflect you gain. 

if you are saying the covered sales are correct without consideration of the non-covered sales, then I'd let it be. 

[billg02176]

I am responding to the inquiry on Covered vs. Non-Covered shares. 
I am a Fidelity Brokerage Account holder and have shares in a mutual fund that predate the rule where the Brokerage had to report cost basis to the IRS. Hence, When I sell a portion of my mutual fund i.e. One fund that was purchased before 2011, I know, it's FIFO so those older share will be sold. 
I will get a 1099-B, which will show the sale, but the cost basis will be wrong.  What I do us use the current cost basis for all of the other shares I hold post 2011, when the reporting to the IRS was mandated. 

As an example, as of 3/2/2024, I have shares of contra fund with a 'cost basis' of $6.61 per share. 
I have post 2011, where cost basis is reported.  That being said I have 2 different cost basis on the tone fund and  what I do when preparing my taxes, Turbo asks "Do you want to change the cost basis on this 1099-B'' which is for that one sale (Pre-2011). What I do is change the $6.61. to the current Cost Basis for all of the other lots I have which currently is 11.41 and then i'm done with that 1099 - B and the cost basis has been adjusted as if those lots were part of my post 2011 lots.  

Because reporting did not have to happen post 2011, the cost basis for pre-2011 was never included in the cost basis adjustments by the Brokerage, therefore, it's up to the tax preparer and / or  person owning the shares to 'be smart' and adjust accordingly, were the Brokerage Firm, (in this case Fidelity) left those lots unchanged. 

I hope this is helpful. 

Turbo Tax does handle this nicely !! 

Billg02176