FAQs: How to Change Your Cost Basis Information

  • What's the difference between the average cost method and the actual cost method?

    The average cost method calculates cost basis based on the average price paid for all shares held, regardless of holding period (mutual funds only). The actual cost method calculates cost basis using the specific amount paid for the shares sold. To use the actual cost method, you must identify the specific lots to be sold when placing the sell orders. This method gives you the most control over the amount of realized gains and losses.

  • What's the difference between covered and noncovered securities?

    Covered and noncovered refer to how we report the cost basis to the IRS. Beginning with certain securities purchased in 2011 and subsequently sold or redeemed, all brokers' IRS reporting obligations were expanded to include cost basis information related to your sales or redemptions of covered securities on Form 1099-B. Covered securities include:

    • All stock purchased on or after January 1, 2011
    • Shares in mutual funds and dividend reinvestment plans (DRIPs) purchased on or after January 1, 2012
    • Certain fixed-income securities and options purchased on or after January 1, 2014

    Note: The IRS will require reporting for other related securities in following years. Since these regulations are new, you may hold both covered and noncovered securities, and Fidelity tracks and reports sales and other dispositions from each category separately. The term "noncovered" refers to securities purchased prior to the effective dates in the legislation (January 1, 2011, and January 1, 2012). Fidelity generally will not report cost basis and holding period information to the IRS on noncovered securities. However, we will report this information to you with your supplemental information.