Starting This Year, Brokerage Statements Will Be Changing for the Better

In October 2008, Congress passed the Emergency Economic Stabilization Act, requiring brokers to report adjusted cost basis for taxable accounts to the IRS and the taxpayer through form 1099-B beginning with the 2011 tax year. Cost basis normally is the price the taxpayer paid for the shares, adjusted by any transactions that would increase or decrease the number of shares the taxpayer owns. This requirement is designed to make the reporting of gains and losses from securities more accurate and complete. The legislation applies to different types of securities in phases depending on the type of security. The effective dates for the various types of securities are as follows:

• January 1, 2011, equities and REITs
• January 1, 2012, mutual funds, ETFs and dividend reinvestment plans
• January 1, 2013, for other securities, options, and debt instruments

This legislation only covers securities acquired on or after the effective dates listed above. Brokers must also indicate whether the gain or loss is short-term or long-term. Securities purchased before the effective dates above will not be covered. The taxpayer will be responsible for obtaining the cost basis for securities purchased before these dates, as they have been in the past.

Cost Basis Reporting Method Selection

This new regulation requires the security to choose a default method of cost basis reporting and notify the taxpayer of the election. The taxpayer has the option to select a different method of cost basis reporting by making the election on the cost basis election form. If the taxpayer does not make an election for alternative reporting, the default method will apply. The cost basis method can always be changed on future purchases, but cannot be retroactively applied. The best election to make depends on the taxpayer’s personal situation.

Contact one of our tax professionals to help you decide which method is best for you.

Circular 230 Notice: If this communication contains tax advice, this advice was not intended to be used, and cannot be relied upon by anyone, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.