What if I cannot determine the cost basis of a stock I sold what do I do? (2024)

FAQs

What if I cannot determine the cost basis of a stock I sold what do I do? ›

The Internal Revenue Service (IRS) says if you can identify the shares that have been sold, their cost basis can be used. 1 For example, if you sell the original 1,000 shares, your cost basis is $10. If you can't make this identification, the IRS says you need to use the first in, first out (FIFO) method.

The bottom line is that the IRS expects you to maintain records that identify the cost basis of your securities. If you don't have adequate records, you might have to rely on the cost basis that your brokerage firm reports—or you may be required to treat the cost basis as zero, which could mean owing more in taxes.

For tax calculation purposes, the adjusted cost basis when the stock is sold will be recorded at $1,300 instead of the original purchase price of $1,000. Thus, if the sale price is $1,500, the taxable gain would only be $200 ($1,500 - $1,300) instead of $500 ($1,500 - $1,000).

How can we help? The Form 1099-B that you receive might only report the sale date and sales proceeds. If it does not report the date acquired or cost basis, you still need to enter that information when you report your Form 1099-B in the TaxAct program so that it will transfer to Schedule D and/or Form 8949.

You may not change a position's cost basis if it's coded with a known cost basis. To update an individual security's cost basis, you'll need to have an old statement or confirmation that indicates the cost you paid.

Purchase Records

If you purchased the asset, documents from the original sale are the preferred option for verifying cost basis. This can include any brokerage statements, commission statements or other proof of purchase for securities that you purchased.

A noncovered security is an SEC designation indicating that a broker does not have to report the cost basis of that security to the IRS. This is generally for smaller securities. Securities created from noncovered securities, such as stock splits or DRIP accounts, remain noncovered.

Average cost method

Average cost is calculated by taking the total cost of the shares you own and dividing by the total number of shares. Be aware, if you select this method for cost basis reporting, you must use it for all shares bought before that initial stock sale.

Average Cost

This method of calculating cost basis is permitted for mutual funds only and cannot be used to calculate cost basis for individual securities such as stocks and bonds.

You remain responsible for reporting your cost basis information to the IRS every year on Form 1040, Schedule D, for all shares sold, whether they're covered or noncovered. You should use your own records in addition to the cost basis information we provide.

How do you fix missing cost basis? ›

Duplicate transactions can cause missing cost basis warnings and other software errors. This usually occurs because you have imported multiple API's or files containing the same information from one exchange.

Back in 2008, Congress passed a law requiring brokers to report the cost basis of certain securities to the IRS when a sale occurred. The reporting requirements were rolled out in phases beginning in 2011. Let's take a quick look at the implementation schedule for required reporting.

For example, let's say an investor bought 10 shares of ABC company for a total investment of $1,000 plus a $10 trading fee. The investor receives dividends of $200 in year one and $400 in year two. The cost basis would be $1,610 ($1,000 + $10 fee + $600 in dividends).

If you own at least 100 shares of stock, you can sell a covered call using the equity position as a collateral. Selling a short call brings in a credit. The credit received lowers the overall position's cost basis.

To calculate the average cost, divide the total purchase amount ($2,750) by the number of shares purchased (56.61) to figure the average cost per share = $48.58. Cost Basis = Average cost per share ($48.58) x # of shares sold (5) = $242.90.

You remain responsible for reporting your cost basis information to the IRS every year on Form 1040, Schedule D, for all shares sold, whether they're covered or noncovered. You should use your own records in addition to the cost basis information we provide.

Cost of sales for goods and products

If you buy in goods to sell and don't hold any stock, also known as inventory, then this is fairly straightforward. The formula is sales income – cost of goods sold = gross profit.

The simplest way to keep track of your cost basis is to note the amount of dividends on which you're taxed from year to year. By adding those amounts to what you originally paid for shares, you'll accurately reflect your total cost basis for the position.