Monday, March 16, 2009

Missing "cost basis" of stocks could be trouble when preparing your return, but there is help to get your through it.

Q. What happens when I don’t have a cost basis for my long or short term capital gain stock sale?

A. What a dilemma this is. Many of us have experienced this when we receive a 1099–B form with only the sold date and proceeds listed. We start to get nervous because we just increased our tax liability (sometimes substantially) and may owe the federal government money. No need to panic, however.

First off, if the cost basis (the original dollar amount paid plus any reinvested dividends or capital gains in the case of mutual funds) is not listed – CALL YOUR MONEY MANAGER OR BROKER. They can usually access your cost basis and the date purchased. This is the best course of action.

If you cannot reach them because you are working on your taxes at 11:59 pm on April 15th, you have other options. If you only purchased stand alone stocks at different dates and prices, NOT in a mutual fund, you can use the First In First Out Rule. Hopefully, you have some information on some the original purchase price of stocks and dates. With that information, you can apply these stock prices and dates as your “cost basis”. Warning: you need to use the first date you purchased stocks to compute your gain or loss as short term or long term.

If the missing cost basis information is in a mutual fund, you can use the average basis of the stocks if they were acquired at different times and use this as your cost basis. There are two methods of the average basis: double category and single category. The double category is used for stocks that are long term and short term where you need to average each category out (i.e. one average cost basis for long term and one average cost basis for short term). The single category is when all the stocks in the account are averaged for an overall cost basis since they are all either long-term or short-term sales.

Your off-the-shelf tax software or even your accountant cannot help you with this information. You need to know the cost basis to correctly complete your return. Once you have this information, just add in the information and you are on your way to completing your taxes in a manner that should pass muster with the IRS.

A website that may be helpful to you in researching historical prices is

Visit for fee tax resources (including our online tax guide), financial calculators and filing options, including free access to a fillable IRS automatic extension form.

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