The Internal Revenue Service requires mutual fund companies to report cost basis information to both investors and the IRS on the sale or exchange of fund shares acquired on or after January 1, 2012 — called “covered” shares.
The IRS regulations only apply to taxable accounts. As a result, tax-favored accounts, including 529 and retirement accounts, are not required to report cost basis.
The cost basis of mutual fund shares is typically the purchase price, including any sales charges paid when an investor purchased shares. Activity including reinvested dividends/capital gains and wash sale adjustments may increase the basis while other activity including nondividend distributions (i.e., return of capital) may reduce the basis.
The regulations make the distinction between covered and noncovered shares in a taxable account.
When shares are sold or exchanged, the capital gain or loss is the difference between the proceeds from the sale or exchange and the cost basis of the shares.
Even though we will report cost basis for the sale or exchange of covered shares to the IRS, the investor will be responsible for reporting any capital gain or loss information for both covered and noncovered shares to the IRS.
Whether shares are purchased directly or through reinvestment, the length of time an investor owned the shares — their holding period — determines whether their gain or loss is considered long- or short-term.
Special rules apply to losses from the sale of shares held six months or less if you received capital gain distributions on those shares. Please consult your tax advisor for more information.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.