In nonretirement accounts, the sale, redemption, or exchange of individual securities and mutual funds, other than money market funds, is reported to you and the IRS on Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, (part of the Fidelity tax reporting statement). Using Form 8949 and/or Form 1040, Schedule D, you must report a summary of sales or exchanges, and any gains or losses to the IRS. Generally your gain or loss is the difference between your cost basis and the proceeds from the sale or exchange. You can think of cost basis as the total cost of purchasing the security, including various adjustments.
2013 update on cost basis reporting to the IRS
On April 18, 2013, the IRS issued Final and Temporary Regulations governing "[Cost] Basis Reporting by Securities Brokers and Basis Determination for Debt Instruments and Options; Reporting for Premium." These updated rules modified brokers' cost basis reporting requirements, especially for debt instruments, such as bonds and options. Here is a summary of Fidelity’s cost basis reporting requirements.
Fidelity began reporting cost basis and other related information for certain covered securities on Form 1099-B, for Tax Year 2011. Form 1099-B is primarily used to report sales, redemptions, and exchanges of securities. We are required to report most 1099-B information to you and the IRS.
Generally, the regulations define covered securities as:
- 2011 – Stock in a corporation purchased on or after January 1, 2011 (not including stocks eligible for average basis)
- 2012 – Shares of registered investment companies, including open-end mutual funds, and stocks acquired in dividend reinvestment plans (DRIPs), purchased on or after January 1, 2012
- 2014 – Non-complex debt securities that have a single fixed payment schedule as well as a maturity date, and were acquired on or after January 1, 2014. Equity options and Section 1256 options, as defined by the IRS, also qualify as covered securities as of the same acquisition date.
- 2015 – Transfer statement reporting (for example, when you move your account from one firm to another) begins for all equity options and non-complex fixed income securities.
- 2016 – Complex debt instruments (acquired on or after January 1, 2016), including those with more than one stated rate of interest, convertible debt, stripped bonds or stripped coupons, non-dollar denominated debt, tax credit bonds, debt with a payment in kind (PIK) feature, foreign debt issued by a non-U.S. issuer, contingent payment debt, and inflation-indexed debt.
- 2017 – Transfer statement reporting by brokers begins for all complex debt issues that are covered as of January 1, 2016.
Noncovered securities include the types of securities, described above, whose acquisition and/or disposition dates are older than the applicable dates for covered securities. When the information is available in our records, Fidelity also provides cost basis information for sales, redemptions, and exchanges of noncovered securities in separate sections of Form 1099-B. However, we do not report this cost basis information to the IRS.
The following securities are classified as noncovered:
- Short-term debt (maturity of less than 366 days)
- Real estate mortgage investment conduits (REMICs)
- Securities from the Federal National Mortgage Association and the Government National Mortgage Association (Freddy Macs and Ginny Maes)