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Cost Basis and Tax Reporting Changes
Any time you sell or exchange shares of a mutual fund (other than a money market fund) in a taxable account, you must report the transaction to the Internal Revenue Service (IRS). To determine whether you have a gain or loss, you first have to know your cost basis.
What is cost basis?
Cost basis is the original price paid for shares of a security plus or minus certain adjustments required by applicable tax rules such as adjustments with respect to reinvested distributions and sales charges. When compared to the price at which you sold or redeemed your shares, cost basis tells you how much of a capital gain or loss you have realized.
Fidelity is required to report cost basis* and holding period information for shares purchased in open-end mutual fund holdings in IRS Form 1099-B reportable accounts on or after January 1, 2012.
Since 2012, S corporations have been eligible for 1099-B reporting.
Please see the 1099-B page for additional changes regarding cost basis reporting.
How will Fidelity report cost basis?
Unless otherwise instructed, Fidelity uses the Average Cost method, which calculates cost basis by averaging the share price for each purchase into one price per share. Shares are debited from the account using the First In, First Out (FIFO) order. The average cost of non-covered shares (shares acquired prior to January 1, 2012) will be calculated separately from the average cost of covered shares (shares acquired on or after January 1, 2012).
Why is my cost basis listed as "unknown"?
Fidelity can only calculate cost basis values if we have all the proper information; if the cost basis of some shares is unknown, an average cost cannot accurately be calculated. Unknown cost basis can occur for a variety of reasons. which include but are not limited to the following:
- Mutual fund accounts established before 1991
- Prior to 2012. transfers of shares from other institutions, including Fidelity's retail business
- Prior to 2012. transfers between registrations with different Social Security numbers
- For shares acquired prior to 2012, election of an accounting method other than average cost.
Can I choose another cost basis method?
To choose a cost basis method other than the Fidelity default of Average Cost, you must submit a completed Cost Basis Method Election form. The form lists the alternate cost basis methods that you can choose. Please note:
- If you want to change the cost basis method on multiple 1099-B reportable accounts, you must complete a separate Cost Basis Method Election form for each eligible account.
- The method defaulted or chosen will be used for all debiting transactions, including but not limited to transfer of assets, redemptions, exchanges, and fees.
- You must make any changes before you dispose of shares. Fidelity cannot update the cost basis method after the transaction has posted to your account.
NOTE: The intermediary firm or the investment professional associated with your account(s), as reflected in our records, has authority to choose a cost basis method for your eligible account(s).
Where can I get more information?
The documents below include more details.
- *For tax purposes, your cost basis (plus or minus certain adjustments) is used to determine the gain or loss of a transaction. The information that Fidelity is required to report on your 1099-B may not reflect additional adjustments that you are required to make when filing your tax return.
- The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice.