- Contingent payment debt instruments (timing or amount of interest or principal is uncertain, includes certain Structured Products)
- Convertible bonds
- Non-dollar denominated debt, and debt issued by foreign (non-U.S.) entities, including “Yankee Bonds"
- Inflation index bonds
- Payment-in-kind bonds (PIK)
- Preferred securities treated as debt for tax purposes
- Stripped bonds and stripped coupons
- Tax credit bonds
- Variable rate and stepped rate bonds
For definitions of the various types of investments listed above see the next questions.
1 See “What should I know about cost basis and gain/loss information on securities acquired prior to cost basis reporting requirements?” below.
2 If a shareholder elected to NOT participate in a dividend reinvestment program (DRP), these securities were covered as of Jan. 1, 2011. If they are part of a DRP, they became covered in 2012.
What is the cost basis reporting for options and "less complex" covered bonds under IRS reporting regulations beginning on Jan. 1, 2014?
The cost basis regulations divide debt instruments into two categories, generally based on the complexity of the tax rules applicable to different types of bonds and debt instruments, for cost basis reporting purposes: “less complex” bonds and “more complex” bonds. “Less complex” bonds are generally debt instruments with a fixed yield and maturity. These regulations do not affect which investments FINRA or other regulators may deem to be a complex security or product.
Most option closing transactions have cost basis and holding period reported to you and the IRS on Form 1099-B. Option premium will be reported as an adjustment to basis or gross proceeds, depending on the option (put or call) and the taxpayer’s position in the option (writer/short or holder/long).
The tables below provide details about the less complex debt instruments and options that are covered beginning with purchases in 2014.
Bonds
- This is a "plain vanilla" bond, with a fixed (non-variable) interest rate, fixed term, and a stated maturity date
- Example: Corporate bond with fixed interest rate and fixed maturity date
- Debt with a mandatory sinking fund provision
- Debt with at least one payment subject to a contingency or option that is very likely to occur or very likely not to occur
- Debt with at least one contingent payment but a fixed yield
- For example, callable bonds if issued at par and callable at par
Options
- Options on financial attributes of specified securities, such as interest rates or dividend yields
- Example: Option on an interest rate index
- The right, but not the obligation to acquire stock from the issuer or sell stock to the issuer
- A shareholder’s option to acquire new shares of stock issued by a corporation
What are the "more complex" bonds that are subject to the cost basis reporting regulations starting with Jan. 1, 2016 purchases?
The IRS defines debt instruments as “more complex” if they are not “less complex” (as defined above) or excluded from cost basis reporting. Generally, a debt instrument is “more complex” if the applicable tax rules are more complicated. These regulations do not affect which investments FINRA or other regulators may deem to be a complex security or product.
The tables below provide details about the more complex debt instruments that are covered beginning with purchases in 2016 and their tax reporting implications.
| Investment type | Description | Examples |
|---|---|---|
| Variable rate (and stepped rate) debt instrument (VRDI) | Bonds and debt instruments with an interest rate that changes (or could change) over time. | Examples: Floating rate bonds |
| Convertible bonds | Bonds that can be converted into stock or into cash or other property of equal value. | Examples: Mandatory exchangeable securities |
| Stripped bonds and stripped coupons | Bonds where one person holds the right to receive principal payments and another person holds the right to receive interest payments. | Example: US Treasury STRIPS |
| Contingent payment debt instruments (CPDI) | Debt with one or more contingent payments. | Examples: Bonds and CDs with payments determined by reference to the value of an asset or index. Ameriprise ® Stock Market Certificates |
| Inflation indexed bonds | Debt that adjusts principal for inflation or deflation. | Example: TIPS (Treasury Inflation Protected Securities) |
| Payment in-kind bonds (PIK) | Bonds that pay “interest” with additional bonds instead of cash | |
| Tax credit bonds | A debt instrument that, at one or more times in the future, entitles the holder or issuer to a tax credit | Build America Bonds |
| Foreign issued bonds or bonds paying in a foreign currency | A payment of interest or principal in a currency other than the U.S. dollar | Example: Bonds making interest payments in Euros |
| Physical certificates | Bond evidenced by a physical certificate unless such certificate is held by a securities depository or by a clearing organization | Example: Bearer bonds |
| Certain Preferred securities | Preferred securities taxable as debt in the prospectus | Example: Preferred securities that trade with the accrued interest |
| A debt instrument that is issued as part of an investment unit | Debt issued together with other property or embedded derivatives such as options, stock rights, or warrants | Example: Reverse convertible securities |
| Debt without a prospectus, offering memorandum, or other description of the debt’s terms & conditions | A debt instrument for which the terms of the instrument are not reasonably available to the broker within 90 days of the date the debt instrument was acquired by the customer | Example: Private debt |
“Noncovered” investments are exempt from cost basis tracking and reporting requirements. These may be investments purchased prior to the regulation phase-in date for the specific type of investment (see above) or investments currently excluded from cost basis reporting regulations (see below).
While we may provide you with cost basis and holding period information for noncovered securities, if we have it available, it is for informational purposes only and we will not report it to the IRS.
Investments currently excluded from cost basis regulations:
- Debt instruments secured by a pool of debt instruments that are subject to prepayment of principal, including:
- Certain Asset-Backed Securities (ABS)
- Mortgage-Backed Securities (MBS)
- Real Estate Mortgage Investment Conduits (REMIC)
- For sales and transfers of noncovered investments, cost basis and holding period information is not required to be reported to the IRS (for sales) or to other custodians (for transfers). (See Which investments are not subject to cost basis reporting regulations?)
- Individual taxpayers are responsible for tracking the cost basis of their noncovered investments and for calculating and reporting the holding period and any realized gain or loss on the sale of those investments. Taxpayers are generally required to report this information on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets.
- For data related to noncovered investments, including all data for investments acquired in 2010 and prior years, it is important to verify this information using your own records when calculating gains or losses for tax reporting purposes. For noncovered shares, we may adjust for returns of capital, wash sales, corporate actions, basis transfers, and gifted and inherited shares, but we may not have made these adjustments prior to cost basis reporting start dates for various investment types. Please consult with your tax advisor in those situations. We also cannot verify cost basis information obtained through corporate acquisition of other brokers.
Cost basis reporting affects nonqualified accounts subject to reporting on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. This includes all nonqualified accounts owned by:
- Individuals
- Individuals in joint accounts (including but not limited to Joint Tenants with Rights of Survivorship, Tenants in Common)
- Uniform Gift and Transfer to Minors (UGMA and UTMA)
- Partnerships
- Trusts and estates
- S Corporations
- Most limited liability companies (unless the LLC has a single owner that is not subject to reporting – see below)
- Accounts owned by corporations, government entities, exempt organizations, financial institutions, etc. are not subject to cost basis reporting.
- Retirement and education savings accounts (including inherited accounts) listed below are not subject to cost basis reporting. Distributions from these accounts will continue to be reported as they have in the past.
- IRAs
- Roth IRAs
- SIMPLEs
- SEPs
- SAR-SEPs
- 403(b) / TSCAs
- 401(k)s
- 401(a)s
- Coverdell Education Savings Account (CESA)
- 529 Plans
- ABLE accounts (Achieving a Better Life Experience Act of 2013)
If you purchased a bond at a premium or discount on or after Jan. 1, 2014, you can make elections related to these bonds which may affect the earnings on your bonds and the character of your bond income. Elections also affect your cost basis and tax reporting. These elections are:
When to recognize accrued market discount
- Broker default – at sale or redemption
- Election – Included in income annually as accrued (current inclusion)
Which accrual calculation method is used for market discount
- Broker default - Constant yield 3 (multiplies the adjusted basis by the yield at issuance less the coupon)
- Election - Straight line (ratable, applies a constant dollar amount for each day the security is held)
Whether or not to amortize bond premium (does not apply to tax exempt debt)
- Broker default - amortize (reduces taxable interest income and adjusts basis)
- Election - do not amortize (does not offset interest income or adjust basis)
Each bond election has an associated due date by which it must be made. Once you choose an election (as opposed to the default) it is generally irrevocable 4 .
After the election due date, you will be locked in to either the default or your election. Your Ameriprise financial advisor can help answer questions regarding election due dates.
An IRS required broker default will be used whenever you do not make an alternate election.
3 The IRS required broker default market discount accrual method was changed to constant yield for bonds purchased as of Jan. 1, 2015. Constant yield was also the broker default accrual method we used for bonds purchased prior to Jan. 1, 2014. Only bonds purchased in 2014 used straight line accrual default method, per IRS rules.
Where can I find more information about cost basis?
4 Some elections may be revoked with written approval from the IRS Commissioner.- If you have any questions about cost basis and the impact on your investments, please contact your Ameriprise financial advisor and tax preparer. If you’re not currently working with an advisor, find an advisor who is right for you.
- For more information on cost basis reporting, see the irs.gov website:
- Form 8949 (including instructions)
- Publication 550: Investment Income and Expenses
- Publication 551: Basis of Assets
- Cost Basis Reporting and FAQs
- Instructions for Form 1099-B
Tax reporting
What will be reported on my tax documents when I sell or dispose of investments in nonqualified accounts?
Your tax package will include a Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, for any account that has a sale or redemption of securities (other than money market mutual funds) during the year.
Transactions will be reported on Form 1099-B in one or more of the following sections, based on holding period and covered/noncovered indicator combinations:
- Short-Term/Covered
- Short-Term/Noncovered
- Long-Term/Covered
- Long-Term/Noncovered
- Undetermined Term
The table below illustrates reporting requirements for covered vs noncovered investments with short, long or undetermined holding periods:
Covered indicator and holding period
IRS reporting requirements
Covered Investments:
- Short-Term holding period
- Long-Term holding period
Reported to the IRS:
- Proceeds
- Date of sale
- CUSIP
- Description
- Applicable checkbox on Form 8949 (Sales and Other Dispositions of Capital Assets)
- Quantity
- Tax withholding (backup withholding, if applicable)
- Cost basis
- Type of gain/loss: short-term, long-term or ordinary
- Date of acquisition
- Whether a loss was disallowed due to a wash sale
- Market discount (for bonds), if applicable
- Whether a security is a collectible or qualified opportunity zone fund (QOF)
Noncovered Investments:
- Short-Term holding period
- Long-Term holding period
- Undetermined holding period 5
Not reported to the IRS:
- Cost basis
- Type of gain/loss: short-term, long-term or ordinary (applicable checkbox on Form 8949 not reported)
- Date of acquisition
- Whether a wash sale was disallowed
- Market discount (for bonds)
Reported to the IRS:
- Proceeds
- Date of sale
- CUSIP
- Description
- Quantity
- Tax withholding (backup withholding), if applicable
- Whether a security is a collectible or qualified opportunity zone fund (QOF)
5 We are not able to determine cost basis and/or holding period information for transactions in the “Undetermined” holding period section based on our records to classify the tax lots as short-term or long-term. These will typically include principal payments, commodity/royalty trusts or tax lots for which we do not have cost basis information. For these transactions you will need to use your personal records to complete your tax returns.
What’s the difference between short-term, long-term, and ordinary gain/loss?Gain or loss from a sale or disposition of an investment in your nonqualified account may be treated as short-term or long-term capital gain or loss, depending on the length of time you own the investment (holding period), with some exceptions.
- Holding period
- Wash sales: See “Wash Sales” below to see how wash sales affect holding period
- Gifts: Holding period generally includes the donor’s holding period if the donor’s basis is used in calculating the gain/loss on the sale
- Inheritance: Holding period is long-term for inherited assets, regardless of how long you and/or the decedent held the investment
- Suspended: The holding period may need to be suspended in certain circumstances for example, when stock is held both long and short. Please work with a qualified tax professional to determine if this is appropriate for your specific situation.
- Generally applies to investments owned for one year or less
- Net gain (gain offset by losses) is taxed at ordinary income tax rates
- Generally applies to investments owned for more than one year
- Net gain (gain offset by losses) is generally taxed at lower rates: 0%, 15%, 20%, with some exceptions for collectibles gain (up to 28%), unrecaptured section 1250 gain from investments in real estate (up to 25%), and certain small business stock gain (0% if held for more than five years)
- Gain or loss may be treated as ordinary under circumstances such as:
- Market discount (if any) realized on the disposition of market discount bonds
- Gains, and certain losses, on a contingent payment debt instrument
- Proceeds attributable to accrued interest on bonds
- Proceeds attributable to depreciation recapture (IRC section 1245)
- Gains and losses from hedging transactions
- Foreign currency gains and losses
- Gain or loss can be a mixture of short-term, long-term, and/or ordinary gain or loss, such as gain or loss from “section 1256 contracts” (60% long-term, 40% short-term)
- See “How is cost basis shown on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions” for tax reporting related to gains and losses.
- IRS Publication 544 (Sales and Other Dispositions of Assets)
- IRS Publication 550 (Investment Income and Expenses)
- IRS Form 8949 (Sales and Other Dispositions of Capital Assets)
- IRS Form 1040 Schedule D (Capital Gains and Losses)
- If you sold multiple tax lots (because you purchased the stock on different days, for example) for the same security with the same holding period (short-term or long-term), covered status and sale date, the tax lots will be combined as an aggregate tax lot on your Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, with the “Date of acquisition” listed as “various.” The underlying individual tax lots are provided without a “Date of sale or exchange.”
- Any records that don’t contain a “Date of sale or exchange” are informational only and not reported to the IRS. American Enterprise Investment Services Inc., (AEIS) 6 reports the aggregate total to the IRS. Please note: When preparing your tax return, you should rely on your tax preparer to determine whether to use the underlying individual tax lots or the aggregate totals but not both, as this would result in double reporting.
6 AEIS is a subsidiary of Ameriprise Financial, Inc. and is the clearing broker responsible for trade execution, settlement, record keeping and reporting for nonqualified Ameriprise brokerage accounts.
What if I sold both securities that were held long-term and securities that were held short-term within the same sale transaction?
- You may have purchased or acquired securities on different dates. If these separate tax lots are sold as part of a single transaction, the tax reporting for the sale may be split onto different sections of the Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, depending on whether the securities were held long-term or short-term and whether the securities were covered or noncovered.
- Since the transaction reporting is split into different sections of the Form 1099-B, you may need to report information from each of these sections to the IRS on your tax return.
- Consult a qualified tax professional or review the IRS instructions for Form 1040 (Schedule D) Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets, on how to report these tax lots.
Why is the cost basis information for tax lots sold with a disallowed loss different on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, from what I see on my financial statement and on ameriprise.com?
In situations where you have a sale impacted by a wash sale, the cost basis information on your tax document may be different from what is on ameriprise.com because the IRS requires the basis to be reported separately from the wash sale loss disallowed adjustment for sales of covered securities. The wash sale loss is calculated in the IRS Form 8949. For more information see the “Wash sale” section below.
How is Ameriprise reporting redemptions from floating rate institutional money market funds?The Securities and Exchange Commission (SEC) money market fund reform rules state that institutional money market funds are now required to have a floating Net Asset Value (NAV) 7 . This means that they are now more likely to have gains and losses resulting from share redemptions in nonqualified accounts.
What this means to you:
- All money market funds are exempt from tax reporting on share sales and redemptions and from wash sale reporting rules
- Ameriprise will not issue Form 1099-B, Proceeds From Broker and Barter Exchange Transactions for redemptions from these investments
- However, we will provide cost basis and gain/loss information to you on the supplemental document “Proceeds Not Reported to the IRS”
- As a default, Ameriprise will use the average cost tax lot method to determine your cost basis
- Alternatively, you can request the “NAV method” 8
Consult your financial advisor to determine how the money market rules affect your money market fund investments, and work with your tax advisor to track cost basis and wash sales and to report gains and losses, if applicable.
7 Government and retail money market funds will generally maintain a stable $1 NAV.
Why did I receive an updated Form 1099-B, Proceeds From Broker and Barter Exchange Transactions?
8 NAV method requests must be submitted in writing to your financial advisor.- One of the most common reasons you might receive an updated tax document is income reclassification. Income reclassification is a change in the “tax character” of income or distributions. An income reclassification occurs when a security issuer reclassifies dividend or interest payments in a way that changes how you would treat that income when filing your taxes. When this occurs after initial tax documents have been issued, we may send updated tax reporting to you and to the IRS. If you own multiple securities subject to reclassification, you may receive multiple updated tax documents.
- These reclassifications commonly have an updated Form 1099-DIV, Dividends and Distributions.
- For example, a reclassification could change a long-term capital gain distribution, qualified dividend or ordinary dividend into a return of capital. A mutual fund could also reclassify tax-exempt income into taxable income. Such a change would result in an updated Form 1099-DIV.
Why did I receive a Form 1099-DIV for a dividend I didn’t receive and how does it affect my cost basis?
- This may occur if you held certain convertible bonds.
- Under IRC Section 305(c), a change in the conversion ratio or conversion price of certain convertible securities that results in an increase of the investor’s proportionate interest in the earnings, profits, or assets of the corporation is treated as a distribution by a corporation to a shareholder, even though no monetary distribution has been made by the corporation to the investor.
- We are required to report this deemed distribution to the IRS and to include it on your Form 1099-DIV (or Form 1042-S).
- We will make any applicable adjustments (if any) to the cost basis by the amount of the deemed distribution.
- IRC 305(c) deemed distributions are subject to tax withholding, if applicable.
Tax lot method
What are tax lots and tax lot methods?A tax lot is the number of shares or units of a security that you purchased on the same day at the same price. You have multiple tax lots if you purchased the same security on multiple dates. Certain information is linked to each tax lot for covered securities, such as date of purchase, cost basis (unless average cost basis applies), and holding period.
The tax lot method determines which tax lots will be assigned to the sale of investments if you are not selling the entire position.
What is the default tax lot method for various investments?When determining cost basis and holding period for the sale of investments in your account, you have the option to use a default tax lot method based on account type or you may be able to select a different tax lot method.
To determine which tax lots to sell first, we follow default tax lot methods based on account type and investment types unless we get other instructions from you.
Critical: The assigned tax lots for the sale of a covered security cannot be changed once the trade settles.
The table below provides the default tax lot methods by Ameriprise product and account type.
Your account type: Open-ended mutual funds Closed-ended mutual funds, Equities 9 , bonds and options Ameriprise Brokerage, Strategic Portfolio Services (SPS) Advantage or Strategic Portfolio Services (SPS) Advisor 10 Average cost 11 First In — First Out (FIFO) 12 Ameriprise Select Separate 10 Highest In — First Out (HIFO) HIFO 13,14 Ameriprise Active Portfolios investment, Vista Separate, Investor Unified and Access Accounts 10 Average cost 11 HIFO 13,14 9 Equities include stock, preferred stock (convertible to common stock), real estate investment trusts (REITs) and exchange-traded funds (ETFs).
What other tax lot methods are available?
10 Only the SPS Advantage and SPS Advisor accounts within Managed Products have the option to use the specific identification tax lot method. The specific identification tax lot method is not available for all other Managed Accounts (e.g. Active Portfolios, Select Separate Accounts, etc.) For certain accounts clients may advise the investment manager that they generally wish to tax harvest gains or losses.
11 Average cost is the default method for mutual funds and is calculated separately for the noncovered, covered, and/or gifted shares (if any). Gifted shares are not allowed on average cost if they are gifted depreciated since the cost is not know until the time of sale.
12 If the FIFO method is used, we will redeem the older noncovered shares before the newer covered shares. For SPS Advisor accounts, FIFO applies by default to manual trades, while the loss/gain utilization method applies by default to automated trades (systematic rebalancing).
13 For certain separately managed accounts where the money manager has discretionary authority; the sponsor has chosen to use the Highest In — First Out method as their default.
14 For non-discretionary accounts, you can use the Ameriprise “default tax lot method” based on the assets you own, elect to designate a default tax lot method that is different from the Ameriprise default or at the point of any sell trade, designate the specific tax lots you are choosing to sell.- We support the following tax lot methods:
- For mutual funds and stocks held in dividend reinvestment plans: Average cost, 15 which uses the following calculation 16 :
- First In—First Out (FIFO): The shares purchased first will be sold first.
- Last In—First Out (LIFO): The shares purchased last will be sold first.
- Highest In—First Out (HIFO): The shares with the highest cost will be sold first.
- Loss/Gain Utilization (LGUT): The shares with losses are sold first, beginning with short-term losses, then long-term losses, then long-term gains, and finally short-term gains. Systematic sales (rebalancing) in SPS Advisor accounts use this method by default.
- Specific Lot Identification (also called versus purchase): You choose the shares to sell based on their purchase date and purchase price. 17
- For Institutional Floating Rate Money Market Funds: NAV method is available upon written client request.
15 Average cost is available as an election for dividend reinvestment programs.
Can I change my tax lot method and basis calculation method for mutual funds?
16 When a mutual fund account has both covered and noncovered shares, average cost will be calculated separately for the noncovered and covered shares. A third calculation can be done for shares that were acquired as a gift.
17 Only the Strategic Portfolio Service (SPS) accounts within Managed Accounts investments have the option to use the specific identification tax lot method. All other Managed Accounts investments must use the default method shown in the table above.- If you want to continue to use our default tax lot method, as listed above, no action is required. The default method applies if no specific identification is made. 18
- If you and your tax advisor determine that a change in tax lot method is appropriate, please contact your Ameriprise financial advisor to initiate a change request.
18 Special rules apply if you’re using average cost method for stocks with dividend reinvestment.
How can I change my tax lot method for mutual funds?- If you want to continue to use our default tax lot method, as listed above, no action is required.
- If you and your tax advisor determine that a change to the tax lot method is appropriate, please contact your Ameriprise financial advisor to initiate a change request.
- The IRS permits several methods for determining the cost basis of mutual fund shares redeemed (see above). We will adjust the basis for events such as wash sales, corporate actions, returns of capital, etc., if appropriate.
- If you make a change to your cost basis accounting method before selling covered and noncovered mutual funds shares under the average cost tax lot method, the method change will apply to both covered and noncovered mutual fund shares that you currently own and those covered shares that you purchase in the future19. If you elect to change from average cost to another method after disposing of any covered or noncovered mutual fund shares (i.e. sale, journal, transfer, etc.), the method change will apply only to covered shares acquired after the date of the most recent disposition.
- For example:
You own covered mutual fund shares purchased after 2011 (cost basis and holding period reported to the IRS) and you are using the average cost method: 3,000 shares assigned an average cost at $4.50 per share (the average based on a number of purchases at different prices).- April 10, 2021: you sell 100 shares with a cost basis of $4.50 per share.
- May 13, 2021: you change your tax lot method to specific lot identification after the sale (this assigns and locks in $4.50 per share to all the covered shares you own at that time)
- We continue to measure the holding period of the shares based upon when they were purchased.
- May 17, 2021: you purchase 100 shares at $3.00 per share.
- May 20, 2021: you buy 100 shares at $5.50 per share.
- May 21, 2021: you buy 100 shares at $6.00 per share.
- May 24, 2021: you sell 100 shares and identify which shares you want to sell at the time of sale; you can choose from the following tax lots
- 2,900 shares @ $4.50 per share
- 100 shares @ $3.00 per share
- 100 shares @ $5.50 per share
- 100 shares @ $6.00 per share
19 Historical information may not be accurate depending on how and when the account was established.
Wash sale
What is a wash sale?- IRS Publication 550, Investment Income and Expenses, defines a wash sale as follows: a wash sale occurs when you sell or trade a stock or other securities at a loss, and within 30 days before or after the sale you do one of the following:
- Buy identical or substantially identical stock or other securities.
- Acquire identical or substantially identical stock or other securities in a fully taxable trade.
- Acquire a contract or option to buy identical or substantially identical stock or other securities.
- Acquire identical or substantially identical stock or other securities for your individual retirement account (IRA) or Roth IRA.
Note: A broker may have to make multiple purchases in one day to fill a large order. Wash sale rules don’t apply, in this scenario, or if only one purchase price is quoted.
For more information, consult a qualified tax professional or IRS publication 550 (Investment Income and Expenses), which is available on the IRS website.
What are the requirements for brokers to track wash sales?- For covered securities, 20 American Enterprise Investment Services Inc. (AEIS) is required to track wash sales for identical covered securities (same CUSIP) within the same taxable account only.
- You are responsible for tracking wash sales if:
- The purchase and sale occurred in different accounts, or
- The covered securities purchased and sold were not identical (different CUSIPS), but were substantially identical, or
- Either the securities purchased or the securities sold were non-covered securities 21
Example: If you own two separate brokerage accounts and you sell a security at a loss in one account and purchase the identical security in the other account within 30 days you will need to track the wash sale, as these will not be tracked by AEIS. Not only are separate brokerage accounts different accounts, but a regular nonqualified brokerage account is a different account from an IRA qualified brokerage account.
- Note: AEIS is not required to apply the wash sales rule for accounts owned by securities dealers 22 who have submitted a valid and timely mark-to-market election under Section 475 of the Internal Revenue Code. We must receive your notification of the election and confirmation that the account from which the securities are sold contains only securities subject to the election.
20 See “What investments are covered by cost basis rules and when?” in the General Information section for information.
What are the consequences of a wash sale?
21 See the FAQ below that describes when Ameriprise Financial applies the wash sale rules across certain covered/noncovered mutual funds.
22 As defined in the statute a securities dealer is generally someone who regularly purchases securities from or sells securities to customers in the ordinary course of trade or business.- Disallowed loss — taxpayer is not allowed to claim the loss on the securities sold which are subject to the wash sale rules.
- Basis adjustment — disallowed loss amount is added to the basis of the replacement securities purchased. When the wash sale is caused by a purchase in an IRA, the basis of the IRA isn’t increased.
- Holding period — holding period for the replacement security purchased includes the holding period of the security sold.
- The disallowed loss amount is reported on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions in column 1g (Wash Sale Loss Disallowed (W)).
Short sales can result in wash sales in some situations:
Short-against-the-box:
A short sale of securities that you hold in your account results in a wash sale if you close the short sale (buy-to-close) at a loss and within 30 days of the sell-to-open transaction you purchase identical or substantially identical securities.
Other short sales
Short sales of securities that you DO NOT hold in your account result in a wash sale if you close the short sale (buy-to-close) at a loss and within 30 days you either:
- Open another short sale of identical or substantially identical security or
- Sell identical or substantially identical securities
For information about tracking wash sales within the same or different accounts see “What are the requirements for brokers to track wash sales?” above.
How is the wash sale rule applied for investments acquired through gifting, inheritance or tax-free exchange?
- Investments that are acquired through gifting, inheritance, or tax-free exchange do not trigger the wash sale rule.
- However, the wash sale rule could apply when you sell the inherited or gifted securities.
For information about tracking wash sales within the same or different accounts see “What are the requirements for brokers to track wash sales?” above.
Short sales
What are the rules for reporting equity short sales?For more information, please refer to instructions for Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, and IRS Publication 550, Investment Income and Expenses, available on irs.gov, or speak with a tax advisor.
- The Internal Revenue Service (IRS) requires broker dealers to report buy-to-close transactions for short sales on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
- For short sales opened after Jan. 1, 2011:
Example: You open a short sale on December 23, 2020, selling 1,000 shares of ABC Corp. for $28,000.00. You close the short sale on April 9, 2021, by purchasing 1,000 shares of ABC Corp. for $26,000.00. You will receive Form 1099-B for tax year 2021 to report the closing transaction, including the information required to be reported for a covered security (see What will be reported on my tax documents when I sell or dispose of investments in nonqualified accounts?)
Note: Short positions in options (written options) are not considered short sales for these purposes and are subject to different tax reporting rules.
Gifts and inheritances
What should I know about cost basis on transfers or gifts and inheritances?- Transfers: If you request to move securities between brokerage firms via either an Automated Customer Account Transfer System (ACATS) or a non-ACATS transfer, the transferring brokerage firm is required to provide updated cost basis information for all covered securities transferred to the receiving brokerage firm, which is required to accept and continue to track that information for you. Some information may transfer between some broker dealers for noncovered securities as a service to you.
- Gifts and inheritances: For gifted or inherited covered securities, we update our cost basis records in accordance with rules provided by the IRS. While our processes generally apply the IRS rules related to the basis of gifted or inherited securities, they do not consider all possible situations that may affect the basis of your gifted or inherited securities. In some instances we will not be tracking and reporting cost basis information if we do not have enough data to do it correctly. Therefore, it is important that you work closely with your qualified tax professional when transferring and selling assets acquired by gift or inheritance to determine accurate basis information; and communicate that information to us for reporting.
“We”, “our” and “us” mean Ameriprise Financial Services, LLC. (“Introducing Broker” or “Ameriprise Financial”) and/or American Enterprise Investment Services, Inc. (“Clearing Broker” or “AEIS”).
All securities transactions are cleared by American Enterprise Investment Services, Inc., a wholly owned subsidiary of Ameriprise Financial, Inc. American Enterprise Investment Services is a member of the Financial Industry Regulatory Authority (FINRA), and Securities Investor Protection Corporation (SIPC).
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their qualified tax professional or attorney regarding their specific situation.
Investment advisory products and services are made available through Ameriprise Financial Services, LLC., a Registered Investment Advisor.
