Correcting Cost Basis On 1099-B

[Dean S]

I am trying to figure out how to correct the cost basis for a sale on form 1099-b. I purchased corporate bonds several years ago, this spring the company went bankrupt and the bonds were converted to stock, this stock was then sold. The cost basis (box 1e) is the value of the stock at the time of conversion, this is about half of the cost basis of the bond purchase, the sale price is slightly higher making a loss look like a short term capital gain where it's actually a significant loss. I am not sure how to fix this without raising and red flags. I have used round numbers below to show what is going on. Any help would be greatly appreciated

Box 12: short term transaction with box "A" checked

Date acquired (1b): 10/25/21

Date sold (1c): 08/26/22

Proceeds (1d): $25,000

Cost Basis (1e): $23,000

Actual purchase date of corporate bonds: 2018

Actual cost basis of corporate bond purchase: $50,000

[PattiF]

If you need to change the cost basis for a sale that was reported on a 1099-B this can be done in TurboTax. No red flags will be raised as the company problems would be known to the IRS and the changes that you enter won't be questioned.

To enter their adjusted cost basis in TurboTax, do the following steps:

1. Sign in to TurboTax and open or continue your return
2. Select Search and search for 1099-B
3. On the Did you have investment income in 2022? screen, select Yes
   • If you’ve already added some investment info, select Add investments
4. On the Let's import your tax info screen, search for your bank and import your forms
   • If you don’t want to import your info, select Enter a different way, then Stocks, Bonds, Mutual Funds
   • Continue until you get to the Now, choose how to enter your sales screen, and select One by one then Continue
5. On the Review your sales screen, select the pencil icon next to one of your sales
   • You may not see this screen if you chose to enter your 1099-B another way
6. On the Now, enter one sale on your 1099-B screen, check the box next to The cost basis is incorrect or missing on my 1099-B and select Continue
7. On the Let us know if any of these situations apply to this sale screen, check the box next to None of these apply and select Continue
8. On the We noticed there's an issue with your cost basis… screen, select I know my cost basis and need to make an adjustment and enter the amount
   • You can find your adjusted cost basis on a supplemental form provided by your financial institution. It’s usually available by mid-February along with Form 1099-B
9. Select Continue
10. Your adjusted cost basis has been added for your sale. Repeat steps 5-9 for any other sales you need to modify.

[Dean S]

Patti,

Thank you very much for your prompt and thorough reply. What you have said makes perfect sense, my only followup question is what form to look for from my financial institution to show the corrected cost basis? I currently have a 1099-B which shows the incorrect basis and have a statement from 2018 showing my actual basis.

Thanks again very much.

[JohnB5677]

Your financial institution will probably not have any additional information. Be cautious.  stock splits, wash sales and other stock activities can be reasons for adjustments to the basis.  You can correct the cost basis as @PattiF said, and simply keep the 2018 information available if the IRS wants verification of the change. 

[Dean S]

I have contacted my financial institution and am waiting to hear back on if they can provide any documentation showing the correct cost basis, if not I will keep a copy of my 2018 paperwork showing the initial bond purchase with my return paperwork just in case.

I really appreciate the help.

[rm112752]

I have the same problem using TurboTax Deluxe 2022. After importing the 1099-B from Schwab, TurboTax does not show any individual sales at all, only the account number and balance. I would like to just skip the import for the 1099-B and enter all the sales myself. The 1099-B says to check Box A on Form 8949 for short-term gains reported to the IRS and Box D for long-term gains reported to the IRS. If I check these boxes and then enter the sales myself with costs that don't match the 1099-B, is that going to be acceptable to the IRS? My problem is that Schwab applied the oldest purchases first to all sales, giving me a much greater gain than I was expecting. I wish to apply the highest cost purchases first to reduce the amount of gain.

[PattiF]

You cannot change your mind after the sale and the 1099-B has been issued. You have to instruct your broker before the sale of which shares you want to be sold. 

if you didn't tell the broker to use another method before the sale, it's too late now. The key is ensuring informing the broker in time before the sale that you want to use LIFO or specific lots and that you receive written confirmation from your broker that verifies that method. If your broker doesn't send that information, then the IRS can conclude that you never made an election and so force you to use the default FIFO method. 

@rm112752