Filing capital gains when the cost basis is not reported

[sploosh]

Hi, I retired a few years ago, and started selling mutual funds for living expenses. I've discovered that I've been misunderstanding my 1099-B by taking the reported cost basis at face value, not realizing I needed to calculate a cost basis for sales for which the cost basis was not reported. Obviously this means I was reporting more income than I actually had, so it's in my favor. I need a bit of step-by-step so I can file this part correctly. (Later I'll also amend previous years.)

I have total cost basis information from Quicken, and I'm using cost averaging. Everything is LTG. Let me set up some terms:

Total proceeds = proceeds for which the cost basis was reported (RP) + the proceeds for which the cost basis was not reported (UP). Both amounts are in the 1099-B.

Total cost basis = reported cost basis (RCB) + unreported cost basis (UCB) [to determine the UCB, I subtract the RCB from the total].

Let me know if any of that is incorrect.  Otherwise, here's what I think I'm supposed to do, plus a couple questions. I need two sections:

Long-term (Box D): Enter RP and RCB.

Long-term (Box E): Enter UP. TT tells me to enter the cost basis as "the sum of Box 1e," but the reported amount is zero. I enter UCB here anyway? Or is it an adjustment to the total cost basis, in which case I enter B as the adjustment code?

Is there additional information I need to provide the IRS beyond what TT enters into the Form 8949?

Also, what do "covered" and "noncovered" mean?

[mgarry3416]

So on your Schedule D used in the return to report the sale of stocks and mutual funds there is a section for both long-term and Short-term sales.  in each of these sections there is a further breakout of 3 more sections.  these are marked A - F (ABC shorth-term & DEF long-term)   

For your situation go back to Quicken and change the basis from average to specific lot.  You will then need to identify the shares you sold where the basis is not reported and use the basis in Quicken for those shares.  

Option 2 depending on the total amount of transactions (4, 12, 50 or more) the dollar amount ( $200 or 2,000, or $200,000 or more) and your capital gain rate (0% or more) you may want to see a tax professional to review your investments reporting.  If you are in the 0% capital gain tax rate it may not worth even filing an amended return.  Or if its a lot of money and capital gains it may be well worth talking to a tax professional to set up how to record and report capital gains in the future.   

[sploosh]

Thanks for pointing out that this doesn't matter when the CG is all within the 0% bracket. Of the years I checked, there's only one (2021) when amending would make a difference.

When a mutual fund is set to cost averaging in Quicken, it doesn't record lot information, so your suggestion isn't feasible.  It's impossible to reconstruct the lots even if I wanted to.  (I also disagree with the idea, but that's moot.)  Cost averaging is standard with mutual funds, so when the brokerage knows the cost basis, it doesn't allocate sales to specific lots: it reports the proceeds, the cost basis, and that's all. It's also all that TT asks me for. So I need to work with what I've got, as above. I also have to work in terms of the TT screens rather than where things end up in forms, which is why I asked my questions the way I did.