Cost Basis Reporting and FAQ
The Internal Revenue Service requires mutual fund companies to report cost basis information to both investors and the IRS on the sale or exchange of fund shares acquired on or after January 1, 2012 — called “covered” shares.
The IRS regulations only apply to taxable accounts. As a result, tax-favored accounts, including 529 and retirement accounts, are not required to report cost basis.
What “Cost Basis” Means
The cost basis of your mutual fund shares is typically the purchase price, including any sales charges you paid when you purchased your shares. Activity including reinvested dividends/capital gains and wash sale adjustments may increase your basis while other activity including nondividend distributions (i.e., return of capital) may reduce your basis.
Covered Versus Noncovered Shares
The regulations make the distinction between covered and noncovered shares in a taxable account.
- Covered shares are any shares acquired on or after January 1, 2012. We are required to report the cost basis for any sales or exchanges of covered shares to you and the IRS.
- Noncovered shares are any shares acquired before January 1, 2012, and any shares for which cost basis is unknown. We are not required to report cost basis for these shares to the IRS.
Capital Gain or Loss
When shares are sold or exchanged, the capital gain or loss is the difference between the proceeds from the sale or exchange and the cost basis of the shares.
Even though we will report cost basis for the sale or exchange of covered shares to you and to the IRS, you will be responsible for reporting any capital gain or loss information for both covered and noncovered shares to the IRS.
Whether you purchased your shares directly or through reinvestment, the length of time you owned the shares — your holding period — determines whether their gain or loss is considered long- or short-term.
- Long-term: shares held for more than one year
- Short-term: shares held for one year or less
Special rules apply to losses from the sale of shares held six months or less if you received capital gain distributions on those shares. Please consult your tax professional for more information.