There are new forms and rules for reporting some capital gains and losses in 2011 and following years.
For sales of stock purchased after Jan. 1, 2011, on Form 1099-B brokers report the cost basis as well as the sale proceeds. For stock purchased before 2011, only the proceeds are reported. Also reported is whether the stock was held short-term or long-term.
Mutual funds will receive the same treatment for 2012 and later years, and options and bonds for 2013 and later years. Basis won’t be reported for assets purchased before the initial reporting year.
Your broker has a default method for computing the basis. You can change the method by informing the broker in writing in whatever format it chooses.
In addition, you can use the specific identification method to determine the basis of any sale when the investment was acquired in more than one purchase and less than the full holding was sold. But you have to notify the financial firm in writing before the sale.
Investors also must complete a new Form 8949 in addition to Schedule D when reporting the sales.
After receiving the new Form 1099-B from brokers and other financial firms, review it for errors. The IRS is treating financial firms as the authorities on the tax basis of these investments going forward. Don’t file a tax return that is inconsistent with the information return. Instead, you need to convince the financial firm to issue a corrected form.
RW February 2012.
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