Form 8949

[br1634]

I cashed in $5,000 in mutual fund shares, and incorrectly reported a cost basis of $3850 last year.  The actual cost basis is $54,000, so I'll be amending my return.  In TurboTax, the Form 8949 now shows a loss of $49,000.  Is that correct? I see where the $49,000 comes from, but I didn't actually lose $49,000.  

[MelindaS1]

$49,000 is the correct loss calculation, assuming that you yourself originally purchased the mutual fund shares for a total combined $54,000 purchase price, and you sold them last year at a large loss for only $5,000 in sale proceeds. 

Gain/Loss = Proceeds - Basis 

($49,000) = $5,000 - $49,000 

As long as you "lost" the $49,000 in total share value over the life of the investment, then what the software is calculating for you is correct.

Did you have a more specific question about your cost basis and capital gain transaction for these shares? Did you purchase these yourself, or did your receive them from someone else? 

Keep in mind that if you were not the original buyer of these shares, you may have a different cost basis than the original purchaser. This would result in a different gain or loss on your Form 8949 for the year. See this note from the IRS instructions for Form 8949: 

The basis of property acquired by gift is generally the basis of the property in the hands of the donor. The basis of inherited property is generally the fair market value at the date of death. 

Learn more about Form 8949 at this TurboTax video link.

[br1634]

Thank you for your response.  Yes, I am the original purchaser of the mutual fund shares for a total $54,000.  However, I only cashed in $5,000 worth of those funds.   So, I cashed in roughly 800 shares, but still own around 9,000.  So, unless I'm looking at this wrong, I didn't really have a $49,000 loss in share value since I only cashed in a portion of my investment.  That's why the number of the Form 8949 seem off to me.  Thank you for your assistance.

[ThomasM125 · Accepted solution]

You should enter in TurboTax the cost of the shares you sold. So, if you sold 800 shares, you would just enter the cost of those to determine you gain or loss. So, the cost would not be your total cost of all of the shares, only the cost of 800 of them.

[MelindaS1 · Accepted solution]

As Thomas said, make sure you identify the specific cost basis for each of the shares redeemed (800 in total, in this case) from the fund. That way, you can calculate the exact gain/or loss on the sale of each of these individual shares, in sum.

The IRS requires exact and consistent cost basis tracking to be used at the time of redemption for short term and long term capital gain reporting on the 8949. For example, let's say you purchased the 800 shares in total on 2 separate dates at two different price points, 300 one day, and 500 another day later in the year, leading to 2 sale lots:

[original cost of each share x 300] = Lot 1 basis

[original cost of each share x 500] = Lot 2 basis 

Lot 1 basis + Lot 2 basis = your total cost basis for the 800 shares sold in your partial redemption from the fund. This will lead to an adjusted gain/loss calculation, which factors in an exact basis number against the total sales proceeds. The tax cost basis on the shares sold will be identified and reported to you from your brokerage, using a method such as FIFO (First In First Out), specific identification, or Average Cost. You must use the same costing method in your individual tax return Form 8949 that your brokerage used when they reported the sale to you on your 1099.

You can learn more about the tax treatment that you have elected with your brokerage by checking out the 'Special Rules for Mutual Funds' section in IRS publication 550 Investment Income and Expenses. 

Note that original cost basis per share will be adjusted if additional factors apply such as as purchase commissions, fees, or organizational actions like stock split(s) or return of capital. Combined, these will be your adjusted basis per share - see more in IRS Pub. 550 above.

@br1634