Cost basis on covered versus non-covered securities per 1099-B

I have a question on the cost basis reported on my 1099-B forms.  I sold some of my shares of a mutual fund on 8/1/12 and calculated my average cost tax basis using the average cost of all shares purchased prior to 8/1/12 in that calculation.  My 1099-B seems to be calculating average cost with only those shares purchased prior to 1/1/12, or the "non-covered" period.  It is therefore excluding some purchases made between 1/1/12 and 8/1/12 that would increase my tax basis.  I know this doesn't get reported to the IRS this year, but it will likely result in a difference between my tax basis and theirs going forward into the "covered" period as well.  Has anyone else encountered this, and know is either or both approach correct?  In prior years I never had any differences between my cost basis and what my funds have reported to me.  I have e-mailed the brokerage as well to see why they are making a distinction between the covered and non-covered periods.

 

  • The "Broker"  is not required to report to the IRS the prior 2011share cost,  BUT  you are on the Schedule D.
  • Form 8949, actually.  But that wasn't the question
  • Right, I understand that they are not reporting the pre-2012 cost basis to the IRS; however, if they are placing pre-2012 and post-2012 shares into different buckets, this will impact average cost on an ongoing basis and eventually the post-2012 data will be reported.  I have seen this same method used on two of my 1099-Bs this year, so imagine other taxpayers are having the same issue?
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You need to divide the share sold between those that were purchased and held for more than a year before being sold, and those that were held less than a year; i.e., between long term and short term holdings. Then you need to calculate the average cost basis for each of the long and short positions separately.
  • That's not his issue.
  • In my case I believe all of the shares sold would be considered long-term
  • I believe all covered shares will be short term.  The 1099-B should show the holding period.
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I'm not sure that the fund has the option of combining covered and non covered for the average cost method.  My impression is that were required to separate the covered shares from the noncovered shares.  So you are probably going to have to live with that.  I do not think you have the option of in any way reflecting the price paid for covered shares when non covered shares are sold.  If you had such an option, you would have had to explicitly request that of the mutual fund company prior to the sale.
  • Hmm, that does appear to be what they have done.  I thought that the new rules around covered vs non-covered were just intended to change how much info is reported to the IRS, but by splitting shares into two separate buckets they are in fact changing the resulting gain/loss that people will be reporting.  As I noted, I have e-mailed the fund, so will update with their response, if it sheds any more light on this.
  • Hello jcooney82 - did you ever get clarification from your fund on this?
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