Cost basis reporting FAQ

• Cost basis. Cost basis is used to determine capital gain or loss for tax purposes. It is the original cost of the asset, adjusted for certain activity, including reinvested dividends, reinvested capital gain distributions (for mutual funds), sales charges, transaction fees, wash sales, accrued discounts and premiums (for bonds), returns of capital and corporate actions, where applicable. Other adjustments may apply.
• Tax lots. A tax lot is a record of the date, quantity and cost of a purchase or opening transaction (short sale). Holding period is tracked by tax lot, and cost basis is generally tracked by tax lot. Each purchase represents a unique tax lot, so you could have multiple tax lots within your total position in a security. If a single trade fills in multiple pieces and different prices, however, the prices will be averaged and the trade assigned a single tax lot. Special rules apply to mutual fund shares and most ETF shares in accounts using the average cost method of accounting.
• Nonqualified accounts. Cost basis rules apply to investments held in nonqualified accounts; they are not relevant for investments held in tax-deferred (“qualified”) accounts, including IRAs, 529 plan accounts, HSAs, or qualified retirement plans.

• Cost basis is important for tax purposes because it is part of the calculation used to determine the amount of capital gain or loss when the asset is sold.

• Each time you sell an investment, if you are not selling the entire position, we will identify which investments (tax lots) have been sold based on a tax lot method.

• For more information, see the “Tax lot method” section below.

• Understanding how cost basis plays into investment decisions can help you manage your tax liability over time. Reach out to your Ameriprise financial advisor and tax advisor if you have questions about your specific situation.

“Covered” is a term used to identify investments that are subject to required tracking and reporting of cost basis and holding period information under tax law and IRS regulations. If covered investments are transferred to another custodian, this information must be provided to that firm. See below for information about “What will be reported on my tax documents when I sell or dispose of investments in nonqualified accounts?”

Securities are considered covered based on the investment type and the date purchased. This means that investments you purchase on or after the phase-in date for that type of investment are covered by the requirements. However, any tax lots purchased prior to the phase-in date for that investment type will remain noncovered. Additionally, certain investment types are non-covered regardless of acquisition date (see Which investments are not subject to cost basis reporting regulations?)

• Example 1: Shares of a mutual fund purchased before Jan. 1, 2012 are noncovered. Shares of the same mutual fund purchased on or after Jan. 1, 2012 are covered.
• Example 2: A common stock purchased before Jan. 1, 2011 is noncovered. Shares of the same common stock purchased on or after Jan. 1, 2011 are covered.
• Example 3: Units in a master limited partnership generally are noncovered, regardless of when they were acquired. Partnership unit cost basis is generally tracked and reported by the issuer, not the custodial broker dealer (e.g., Ameriprise). 

This table provides a description of the investment types and the dates they are considered covered under guidance of the law and IRS regulations.

The cost basis regulations divide debt instruments into two categories, generally based on the complexity of the tax rules applicable to different types of bonds and debt instruments, for cost basis reporting purposes: “less complex” bonds and “more complex” bonds. “Less complex” bonds are generally debt instruments with a fixed yield and maturity. These regulations do not affect which investments FINRA or other regulators may deem to be a complex security or product.

Most option closing transactions have cost basis and holding period reported to you and the IRS on Form 1099-B. Option premium will be reported as an adjustment to basis or gross proceeds, depending on the option (put or call) and the taxpayer’s position in the option (writer/short or holder/long).

The tables below provide details about the less complex debt instruments and options that are covered beginning with purchases in 2014.

The IRS defines debt instruments as “more complex” if they are not “less complex” (as defined above) or excluded from cost basis reporting. Generally, a debt instrument is “more complex” if the applicable tax rules are more complicated. These regulations do not affect which investments FINRA or other regulators may deem to be a complex security or product.

The tables below provide details about the more complex debt instruments that are covered beginning with purchases in 2016 and their tax reporting implications.

“Noncovered” investments are exempt from cost basis tracking and reporting requirements. These may be investments purchased prior to the regulation phase-in date for the specific type of investment (see above) or investments currently excluded from cost basis reporting regulations (see below).

While we may provide you with cost basis and holding period information for noncovered securities, if we have it available, it is for informational purposes only and we will not report it to the IRS.

Investments currently excluded from cost basis regulations:

• Debt instruments secured by a pool of debt instruments that are subject to prepayment of principal, including:
  • Certain Asset-Backed Securities (ABS)
  • Mortgage-Backed Securities (MBS)
  • Real Estate Mortgage Investment Conduits (REMIC)
• Employee stock options (once exercised the stock itself is covered)
• Grantor Trusts, including some ETFs taxed as grantor trusts
• Master Limited Partnerships, and most other partnerships, unless taxed as corporations
• Money market mutual funds including floating rate NAV funds
• Options on commodities (oil, precious metals, grains, etc.)
• Options on foreign currency
• Pre-paid forward contracts including many structured products
• Short-term debt instruments - fixed maturity date not more than one year after the issuance date

• For sales and transfers of noncovered investments, cost basis and holding period information is not required to be reported to the IRS (for sales) or to other custodians (for transfers). (See Which investments are not subject to cost basis reporting regulations?)
• Individual taxpayers are responsible for tracking the cost basis of their noncovered investments and for calculating and reporting the holding period and any realized gain or loss on the sale of those investments. Taxpayers are generally required to report this information on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets.
• For data related to noncovered investments, including all data for investments acquired in 2010 and prior years, it is important to verify this information using your own records when calculating gains or losses for tax reporting purposes. For noncovered shares, we may adjust for returns of capital, wash sales, corporate actions, basis transfers, and gifted and inherited shares, but we may not have made these adjustments prior to cost basis reporting start dates for various investment types. Please consult with your tax advisor in those situations. We also cannot verify cost basis information obtained through corporate acquisition of other brokers.

Cost basis reporting affects nonqualified accounts subject to reporting on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. This includes all nonqualified accounts owned by:

• Individuals
• Individuals in joint accounts (including but not limited to Joint Tenants with Rights of Survivorship, Tenants in Common)
• Uniform Gift and Transfer to Minors (UGMA and UTMA)
• Partnerships
• Trusts and estates
• S Corporations 
• Most limited liability companies (unless the LLC has a single owner that is not subject to reporting – see below)

• Accounts owned by corporations, government entities, exempt organizations, financial institutions, etc. are not subject to cost basis reporting.
• Retirement and education savings accounts (including inherited accounts) listed below are not subject to cost basis reporting. Distributions from these accounts will continue to be reported as they have in the past.
  • IRAs
  • Roth IRAs
  • SIMPLEs
  • SEPs
  • SAR-SEPs
  • 403(b) / TSCAs
  • 401(k)s
  • 401(a)s
  • Coverdell Education Savings Account (CESA)
  • 529 Plans
  • ABLE accounts (Achieving a Better Life Experience Act of 2013)

If you purchased a bond at a premium or discount on or after Jan. 1, 2014, you can make elections related to these bonds which may affect the earnings on your bonds and the character of your bond income. Elections also affect your cost basis and tax reporting. These elections are:

When to recognize accrued market discount

• Broker default – at sale or redemption
• Election – Included in income annually as accrued (current inclusion)

Which accrual calculation method is used for market discount

• Broker default - Constant yield³ (multiplies the adjusted basis by the yield at issuance less the coupon)
• Election - Straight line (ratable, applies a constant dollar amount for each day the security is held)

Whether or not to amortize bond premium (does not apply to tax exempt debt) 

• Broker default - amortize (reduces taxable interest income and adjusts basis)
• Election - do not amortize (does not offset interest income or adjust basis)

Each bond election has an associated due date by which it must be made. Once you choose an election (as opposed to the default) it is generally irrevocable⁴.

After the election due date, you will be locked in to either the default or your election. Your Ameriprise financial advisor can help answer questions regarding election due dates.

An IRS required broker default will be used whenever you do not make an alternate election.

³The IRS required broker default market discount accrual method was changed to constant yield for bonds purchased as of Jan. 1, 2015. Constant yield was also the broker default accrual method we used for bonds purchased prior to Jan. 1, 2014. Only bonds purchased in 2014 used straight line accrual default method, per IRS rules.
⁴Some elections may be revoked with written approval from the IRS Commissioner.

• If you have any questions about cost basis and the impact on your investments, please contact your Ameriprise financial advisor and tax preparer. If you’re not currently working with an advisor, find an advisor who is right for you.
• For more information on cost basis reporting, see the irs.gov website:
  • Form 8949 (including instructions)
  • Publication 550: Investment Income and Expenses
  • Publication 551: Basis of Assets
  • Cost Basis Reporting and FAQs
  • Instructions for Form 1099-B

Your tax package will include a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for any account that has a sale or redemption of securities (other than money market mutual funds) during the year.

Transactions will be reported on Form 1099-B in one or more of the following sections, based on holding period and covered/noncovered indicator combinations:

• Short-Term/Covered
• Short-Term/Noncovered
• Long-Term/Covered
• Long-Term/Noncovered
• Undetermined Term

The table below illustrates reporting requirements for covered vs noncovered investments with short, long or undetermined holding periods:

Gain or loss from a sale or disposition of an investment in your nonqualified account may be treated as short-term or long-term capital gain or loss, depending on the length of time you own the investment (holding period), with some exceptions.

• Holding period
  • Wash sales: See “Wash Sales” below to see how wash sales affect holding period
  • Gifts: Holding period generally includes the donor’s holding period if the donor’s basis is used in calculating the gain/loss on the sale
  • Inheritance: Holding period is long-term for inherited assets, regardless of how long you and/or the decedent held the investment
  • Suspended: The holding period may need to be suspended in certain circumstances for example, when stock is held both long and short. Please work with a qualified tax professional to determine if this is appropriate for your specific situation.
• Short-term capital gain or loss
  • Generally applies to investments owned for one year or less
  • Net gain (gain offset by losses) is taxed at ordinary income tax rates
• Long-term capital gain or loss
  • Generally applies to investments owned for more than one year
  • Net gain (gain offset by losses) is generally taxed at lower rates: 0%, 15%, 20%, with some exceptions for collectibles gain (up to 28%), unrecaptured section 1250 gain from investments in real estate (up to 25%), and certain small business stock gain (0% if held for more than five years)
• Ordinary gain or loss
  • Gain or loss may be treated as ordinary under circumstances such as:
    • Market discount (if any) realized on the disposition of market discount bonds
    • Gains, and certain losses, on a contingent payment debt instrument
    • Proceeds attributable to accrued interest on bonds
    • Proceeds attributable to depreciation recapture (IRC section 1245)
    • Gains and losses from hedging transactions
    • Foreign currency gains and losses
  • Net gain (gain offset by losses) is taxed at ordinary income tax rates
  • If we are reporting your gain or loss as ordinary, Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, will indicate ordinary.
  • In some situations, we may not have the information required to determine if gain or loss is ordinary (for example, hedging transactions)
  • Please work with a qualified tax professional to determine how to report ordinary gains or losses on your tax return.
• Mixed gain or loss
  • Gain or loss can be a mixture of short-term, long-term, and/or ordinary gain or loss, such as gain or loss from “section 1256 contracts” (60% long-term, 40% short-term)
• Tax reporting
  • See “How is cost basis shown on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions” for tax reporting related to gains and losses.
• Additional references:
  • IRS Publication 544 (Sales and Other Dispositions of Assets)
  • IRS Publication 550 (Investment Income and Expenses)
  • IRS Form 8949 (Sales and Other Dispositions of Capital Assets)
  • IRS Form 1040 Schedule D (Capital Gains and Losses)

• If you sold multiple tax lots (because you purchased the stock on different days, for example) for the same security with the same holding period (short-term or long-term), covered status and sale date, the tax lots will be combined as an aggregate tax lot on your Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, with the “Date of acquisition” listed as “various.” The underlying individual tax lots are provided without a “Date of sale or exchange.”

• Any records that don’t contain a “Date of sale or exchange” are informational only and not reported to the IRS. American Enterprise Investment Services Inc., (AEIS)⁶ reports the aggregate total to the IRS. Please note: When preparing your tax return, you should rely on your tax preparer to determine whether to use the underlying individual tax lots or the aggregate totals but not both, as this would result in double reporting.

⁶AEIS is a subsidiary of Ameriprise Financial, Inc. and is the clearing broker responsible for trade execution, settlement, record keeping and reporting for nonqualified Ameriprise brokerage accounts.

• You may have purchased or acquired securities on different dates. If these separate tax lots are sold as part of a single transaction, the tax reporting for the sale may be split onto different sections of the Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, depending on whether the securities were held long-term or short-term and whether the securities were covered or noncovered.
• Since the transaction reporting is split into different sections of the Form 1099-B, you may need to report information from each of these sections to the IRS on your tax return.
• Consult a qualified tax professional or review the IRS instructions for Form 1040 (Schedule D) Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets, on how to report these tax lots.

In situations where you have a sale impacted by a wash sale, the cost basis information on your tax document may be different from what is on ameriprise.com because the IRS requires the basis to be reported separately from the wash sale loss disallowed adjustment for sales of covered securities. The wash sale loss is calculated in the IRS Form 8949. For more information see the “Wash sale” section below.

The Securities and Exchange Commission (SEC) money market fund reform rules state that institutional money market funds are now required to have a floating Net Asset Value (NAV)⁷. This means that they are now more likely to have gains and losses resulting from share redemptions in nonqualified accounts.

What this means to you:

• All money market funds are exempt from tax reporting on share sales and redemptions and from wash sale reporting rules
• Ameriprise will not issue Form 1099-B, Proceeds From Broker and Barter Exchange Transactions for redemptions from these investments
• However, we will provide cost basis and gain/loss information to you on the supplemental document “Proceeds Not Reported to the IRS”
• As a default, Ameriprise will use the average cost tax lot method to determine your cost basis
• Alternatively, you can request the “NAV method”⁸

Consult your financial advisor to determine how the money market rules affect your money market fund investments, and work with your tax advisor to track cost basis and wash sales and to report gains and losses, if applicable.

⁷Government and retail money market funds will generally maintain a stable $1 NAV.
⁸NAV method requests must be submitted in writing to your financial advisor.

• One of the most common reasons you might receive an updated tax document is income reclassification. Income reclassification is a change in the “tax character” of income or distributions. An income reclassification occurs when a security issuer reclassifies dividend or interest payments in a way that changes how you would treat that income when filing your taxes. When this occurs after initial tax documents have been issued, we may send updated tax reporting to you and to the IRS. If you own multiple securities subject to reclassification, you may receive multiple updated tax documents.
• These reclassifications commonly have an updated Form 1099-DIV, Dividends and Distributions.
  • For example, a reclassification could change a long-term capital gain distribution, qualified dividend or ordinary dividend into a return of capital. A mutual fund could also reclassify tax-exempt income into taxable income. Such a change would result in an updated Form 1099-DIV.
• Any reclassifications that change cost basis information, specifically when there has been a return of capital, may also result in an updated Form 1099-B. This can occur if the underlying security was sold during the year but after a dividend subject to the reclassification was paid. A return of capital reduces the cost basis in the security so when the security is sold there is more gain or less loss than originally reported. An adjustment due to a wash sale can also result in an updated Form 1099- B if cost basis is reported to the IRS.
• For noncovered securities, cost basis information is not reported to the IRS but is issued to you as supplemental information when available. As a result, if a reclassification changes the cost basis of a noncovered security, we will not send updated Form 1099-B tax information to the IRS. However, we will provide you with an updated informational document that includes the updated cost basis due to the reclassification.
• We may not send an amended Form 1099 if the changes to the information reported on the original 1099 fall under the IRS de minimis safe harbor threshold (see Tax Filing FAQ, Updated or amended tax reporting)

• This may occur if you held certain convertible bonds.
• Under IRC Section 305(c), a change in the conversion ratio or conversion price of certain convertible securities that results in an increase of the investor’s proportionate interest in the earnings, profits, or assets of the corporation is treated as a distribution by a corporation to a shareholder, even though no monetary distribution has been made by the corporation to the investor.
• We are required to report this deemed distribution to the IRS and to include it on your Form 1099-DIV (or Form 1042-S).
• We will make any applicable adjustments (if any) to the cost basis by the amount of the deemed distribution.
• IRC 305(c) deemed distributions are subject to tax withholding, if applicable. 

A tax lot is the number of shares or units of a security that you purchased on the same day at the same price. You have multiple tax lots if you purchased the same security on multiple dates. Certain information is linked to each tax lot for covered securities, such as date of purchase, cost basis (unless average cost basis applies), and holding period.  

The tax lot method determines which tax lots will be assigned to the sale of investments if you are not selling the entire position.

When determining cost basis and holding period for the sale of investments in your account, you have the option to use a default tax lot method based on account type or you may be able to select a different tax lot method.

To determine which tax lots to sell first, we follow default tax lot methods based on account type and investment types unless we get other instructions from you.

Critical: The assigned tax lots for the sale of a covered security cannot be changed once the trade settles.

The table below provides the default tax lot methods by Ameriprise product and account type.

• We support the following tax lot methods:

  • For mutual funds and stocks held in dividend reinvestment plans: Average cost,¹⁵ which uses the following calculation¹⁶:
    
    Average Cost = (Total cost of all shares for a specific mutual fund) / (Total number of shares for this mutual fund held in your account). Holding period is FIFO.

  • For other covered securities: cost basis is calculated separately for each tax lot

• The tax lot methods below are available in Ameriprise brokerage accounts and Ameriprise^® advisory (managed) accounts

  • First In—First Out (FIFO): The shares purchased first will be sold first.
  • Last In—First Out (LIFO): The shares purchased last will be sold first.
  • Highest In—First Out (HIFO): The shares with the highest cost will be sold first.
  • Loss/Gain Utilization (LGUT): The shares with losses are sold first, beginning with short-term losses, then long-term losses, then long-term gains, and finally short-term gains. Systematic sales (rebalancing) in SPS Advisor accounts use this method by default.
  • Specific Lot Identification (also called versus purchase): You choose the shares to sell based on their purchase date and purchase price.¹⁷
  • For Institutional Floating Rate Money Market Funds: NAV method is available upon written client request.

¹⁵Average cost is available as an election for dividend reinvestment programs.
¹⁶When a mutual fund account has both covered and noncovered shares, average cost will be calculated separately for the noncovered and covered shares. A third calculation can be done for shares that were acquired as a gift.
¹⁷Only the Strategic Portfolio Service (SPS) accounts within Managed Accounts investments have the option to use the specific identification tax lot method. All other Managed Accounts investments must use the default method shown in the table above.

• If you want to continue to use our default tax lot method, as listed above, no action is required. The default method applies if no specific identification is made.¹⁸

• If you and your tax advisor determine that a change in tax lot method is appropriate, please contact your Ameriprise financial advisor to initiate a change request. 

¹⁸Special rules apply if you’re using average cost method for stocks with dividend reinvestment.

• If you want to continue to use our default tax lot method, as listed above, no action is required.
• If you and your tax advisor determine that a change to the tax lot method is appropriate, please contact your Ameriprise financial advisor to initiate a change request.
• The IRS permits several methods for determining the cost basis of mutual fund shares redeemed (see above). We will adjust the basis for events such as wash sales, corporate actions, returns of capital, etc., if appropriate.
• If you make a change to your cost basis accounting method before selling covered and noncovered mutual funds shares under the average cost tax lot method, the method change will apply to both covered and noncovered mutual fund shares that you currently own and those covered shares that you purchase in the future19. If you elect to change from average cost to another method after disposing of any covered or noncovered mutual fund shares (i.e. sale, journal, transfer, etc.), the method change will apply only to covered shares acquired after the date of the most recent disposition.
• For example:  
  You own covered mutual fund shares purchased after 2011 (cost basis and holding period reported to the IRS) and you are using the average cost method: 3,000 shares assigned an average cost at $4.50 per share (the average based on a number of purchases at different prices).
  • April 10, 2021: you sell 100 shares with a cost basis of $4.50 per share.
  • May 13, 2021: you change your tax lot method to specific lot identification after the sale (this assigns and locks in $4.50 per share to all the covered shares you own at that time)
  • We continue to measure the holding period of the shares based upon when they were purchased.
  • May 17, 2021: you purchase 100 shares at $3.00 per share.
  • May 20, 2021: you buy 100 shares at $5.50 per share.
  • May 21, 2021: you buy 100 shares at $6.00 per share.
  • May 24, 2021: you sell 100 shares and identify which shares you want to sell at the time of sale; you can choose from the following tax lots
    • 2,900 shares @ $4.50 per share
    • 100 shares @ $3.00 per share
    • 100 shares @ $5.50 per share
    • 100 shares @ $6.00 per share

¹⁹Historical information may not be accurate depending on how and when the account was established.

• IRS Publication 550, Investment Income and Expenses, defines a wash sale as follows: a wash sale occurs when you sell or trade a stock or other securities at a loss, and within 30 days before or after the sale you do one of the following:
  • Buy identical or substantially identical stock or other securities.
  • Acquire identical or substantially identical stock or other securities in a fully taxable trade.
  • Acquire a contract or option to buy identical or substantially identical stock or other securities.
  • Acquire identical or substantially identical stock or other securities for your individual retirement account (IRA) or Roth IRA.
• The wash sale rule can also be triggered by multiple purchases of the same security on the same day, if one of those tax lots is sold within 30 days for a loss. 

Note: A broker may have to make multiple purchases in one day to fill a large order. Wash sale rules don’t apply, in this scenario, or if only one purchase price is quoted.

For more information, consult a qualified tax professional or IRS publication 550 (Investment Income and Expenses), which is available on the IRS website.

• For covered securities,²⁰ American Enterprise Investment Services Inc. (AEIS) is required to track wash sales for identical covered securities (same CUSIP) within the same taxable account only.
• You are responsible for tracking wash sales if:
  • The purchase and sale occurred in different accounts, or
  • The covered securities purchased and sold were not identical (different CUSIPS), but were substantially identical, or
  • Either the securities purchased or the securities sold were non-covered securities²¹

Example: If you own two separate brokerage accounts and you sell a security at a loss in one account and purchase the identical security in the other account within 30 days you will need to track the wash sale, as these will not be tracked by AEIS. Not only are separate brokerage accounts different accounts, but a regular nonqualified brokerage account is a different account from an IRA qualified brokerage account.

• Note: AEIS is not required to apply the wash sales rule for accounts owned by securities dealers²² who have submitted a valid and timely mark-to-market election under Section 475 of the Internal Revenue Code. We must receive your notification of the election and confirmation that the account from which the securities are sold contains only securities subject to the election.

²⁰ See “What investments are covered by cost basis rules and when?” in the General Information section for information.
²¹ See the FAQ below that describes when Ameriprise Financial applies the wash sale rules across certain covered/noncovered mutual funds.
²² As defined in the statute a securities dealer is generally someone who regularly purchases securities from or sells securities to customers in the ordinary course of trade or business.

• Disallowed loss — taxpayer is not allowed to claim the loss on the securities sold which are subject to the wash sale rules.
• Basis adjustment — disallowed loss amount is added to the basis of the replacement securities purchased. When the wash sale is caused by a purchase in an IRA, the basis of the IRA isn’t increased.
• Holding period — holding period for the replacement security purchased includes the holding period of the security sold.
• The disallowed loss amount is reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions in column 1g (Wash Sale Loss Disallowed (W)).

Short sales can result in wash sales in some situations:

Short-against-the-box:

A short sale of securities that you hold in your account results in a wash sale if you close the short sale (buy-to-close) at a loss and within 30 days of the sell-to-open transaction you purchase identical or substantially identical securities.

Other short sales

Short sales of securities that you DO NOT hold in your account result in a wash sale if you close the short sale (buy-to-close) at a loss and within 30 days you either:

• Open another short sale of identical or substantially identical security or
• Sell identical or substantially identical securities

For information about tracking wash sales within the same or different accounts see “What are the requirements for brokers to track wash sales?” above.

• Investments that are acquired through gifting, inheritance, or tax-free exchange do not trigger the wash sale rule.
• However, the wash sale rule could apply when you sell the inherited or gifted securities.

For information about tracking wash sales within the same or different accounts see “What are the requirements for brokers to track wash sales?” above.

For more information, please refer to instructions for Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, and IRS Publication 550, Investment Income and Expenses, available on irs.gov, or speak with a tax advisor.

• The Internal Revenue Service (IRS) requires broker dealers to report buy-to-close transactions for short sales on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
• For short sales opened after Jan. 1, 2011: 

Example: You open a short sale on December 23, 2020, selling 1,000 shares of ABC Corp. for $28,000.00. You close the short sale on April 9, 2021, by purchasing 1,000 shares of ABC Corp. for $26,000.00. You will receive Form 1099-B for tax year 2021 to report the closing transaction, including the information required to be reported for a covered security (see What will be reported on my tax documents when I sell or dispose of investments in nonqualified accounts?)

Note: Short positions in options (written options) are not considered short sales for these purposes and are subject to different tax reporting rules.

• Transfers: If you request to move securities between brokerage firms via either an Automated Customer Account Transfer System (ACATS) or a non-ACATS transfer, the transferring brokerage firm is required to provide updated cost basis information for all covered securities transferred to the receiving brokerage firm, which is required to accept and continue to track that information for you. Some information may transfer between some broker dealers for noncovered securities as a service to you.
• Gifts and inheritances: For gifted or inherited covered securities, we update our cost basis records in accordance with rules provided by the IRS. While our processes generally apply the IRS rules related to the basis of gifted or inherited securities, they do not consider all possible situations that may affect the basis of your gifted or inherited securities. In some instances we will not be tracking and reporting cost basis information if we do not have enough data to do it correctly. Therefore, it is important that you work closely with your qualified tax professional when transferring and selling assets acquired by gift or inheritance to determine accurate basis information; and communicate that information to us for reporting.