Covered and non-covered cost basis

[Jonathan1]

I have a taxable mutual fund with an asset value of $17,000 that I wish to sell. The covered cost basis is $17,500 and the non-covered cost basis is $4,400.

I think I understand why there is a covered and non-covered for this fund. That is, securities are typically non-covered if acquired prior to January 1, 2011.

If I sell this fund in entirety at $17,000 would my capital gain be $21,900 (17,500 plus 4,400) minus $17,000 or am I interpreting it the wrong way and I have to employ another approach?

[Bsch4477]

When you report your 1099-B TurboTax will calculate that for you. 

[Jonathan1 · Accepted solution]

Thank you.  Please kindly excuse my request for clarification - as I have not yet done the distribution and I'm unfamiliar with inputting the entry for this on TT.   

I am interpreting your response to mean that Turbo Tax has a section for me to enter both covered and non-covered cost basis for this distribution.  And, as such, Turbo Tax will than derive the capital gain or loss for me after I enter sales amount, covered cost basis and non-covered cost basis.  Is that correct? 

Many thanks. 

[Bsch4477]

Correct!

[dmertz · Accepted solution]

Your cost basis is what you paid for the shares.  You've indicated that the current value is less than your basis, so if you sell the entire position at the current value you would have a net capital loss, not a gain.  The sale of the uncovered shares is reported separately from the sale of the covered shares and it's possible that you could have a gain on one and a loss on the other.  The covered shares could also be split into long-term and short-term shares depending on whether the particular shares were held for more than one-year.  (It's also possible that some uncovered shares could be short-term if they were not originally purchased within the particular account.

As Bsch4477 said, the Forms 1099-B that you receive will show each of these lots separately.