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Understanding Cost Basis Reporting Changes



New rules concerning cost basis reporting mean some of the biggest changes for individual taxpayers in more than 20 years.

Cost Basis Resources

Log in and visit the Tax Center for additional resources and tools to help make your tax preparation easier, including:

  • Details on the new reporting rules.
  • A calendar showing which of your securities will be affected, when.
  • A demo of the potential tax impact of each cost basis method.
  • An interactive demo of the redesigned Form 1099 Composite.
  • FAQs about cost basis reporting.

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Frequently Asked Questions

How does this change the way I fill out my tax forms?
The IRS released a new tax form, Form 8949, for reporting gains and losses. Starting in 2011, your sale transactions will be reported on the Form 8949 with the totals being carried over to the revised Schedule D. Sales transactions will fall into one of three categories: Sales of covered securities for which cost basis is provided, sales of non-covered securities for which no cost basis is provided on the 1099B or the sales of investments for which no 1099-B is received.
What are covered and uncovered securities?
Covered refers to securities acquired on or after the effective dates in the legislation (Jan.1 of 2011, 2012, or 2013). Uncovered or non-covered refers to securities acquired prior to the effective dates. Schwab will report cost basis for covered securities to the IRS and taxpayers on Form 1099-B. Taxpayers remain responsible for reporting cost basis for all uncovered and covered securities to the IRS on their tax returns.
Are all security types reported to the IRS?
No. Schwab will report cost basis for covered securities only to the IRS and taxpayers on Form 1099-B. Covered refers to securities acquired on or after the effective dates in the legislation as follows:
  • January 1, 2011 for Equities
  • January 1, 2012 for Mutual Funds, ETFs and Dividend Reinvestment Plans ("DRIPs")
  • January 1, 2013 for other securities (including Fixed Income and Options)
What if my cost basis is missing?
You will need to determine the cost basis of a sold security in order to accurately file your taxes.. There are steps you can take now to determine the cost basis in preparation for tax time:
  • Determine where the security was purchased.
    • Review your original statements or confirmations or request them from the purchasing broker.
    • Check your past statements and trade confirmations for the original purchase dates and prices.
    • Contact the broker who transferred your securities to Schwab.
  • Research historical prices online.
  • Use your search engine to find other sources to help calculate cost basis.
  • If you are unable to obtain the original purchase information, consult a tax advisor for suggestions on how to proceed.
The IRS may allow the use of an estimate, such as the average for the day purchased or approximate time frame of the purchase. The IRS may require you to report zero if you can't prove the cost basis, so whenever using an estimate, we strongly encourage you to consult with a qualified tax advisor, CPA, Financial Planner or Investment Manager.
What is a wash sale?
In general, a wash sale occurs if you sell securities at a loss and buy substantially identical replacement shares within 30 days before or after the sale. In other words, the wash sale period for any sale at a loss consists of 61 days: the day of the sale, the 30 days before the sale, and the 30 days after the sale. As a result, you can't convert a long-term loss into a short-term loss to take advantage of short-term tax deductions.

There are three consequences of a wash sale:
  • The loss on your sale is disallowed (deferred).
  • The loss is added to the cost basis of the replacement shares/purchase.
  • The holding period for the new shares includes the time you held the original shares plus the number of days you did not hold shares.


See more cost basis FAQs >




The information contained herein is of a general nature and based on authorities that are subject to change.  Applicability of the information to specific situations should be determined through consultation with your professional adviser. This article does not necessarily represent the views or professional advice of KPMG LLP.

KPMG LLP is not affiliated with Schwab.

Because these new reporting requirements could impact the cost basis used to compute your taxable gains and losses, it’s important to understand when and how they will apply to you.  The information in this video is intended as informational only and is not individualized tax advice.  Schwab does not provide tax advice and encourages you to consult with your tax professional to understand how the new reporting requirements will affect you and your tax situation.

For covered securities that were not both purchased and sold at Schwab, Schwab calculates cost basis using data that we have obtained from third-party sources such as your prior custodian or another third-party source.  Therefore, the accuracy of the basis reporting Schwab performs is dependent on the data we receive from these third-parties.  If we are not provided with adequate information to report cost basis data for covered securities that were not both purchased and sold at Schwab, those securities will be considered uncovered and the cost basis will not be reported to the IRS even if the securities sold were acquired after the effective date for cost basis reporting.