Demystifying Cost Basis Reporting

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TD Ameritrade Explains What Recent Changes Mean for Investors

These changes will lessen the burden of cost basis reporting for investors because we’ll handle it for them. But, we know there will be questions, so we’re doing all we can to help educate clients and make this transition as simple as possible.

Cost Basis - another financial buzzword that’s drawing increased attention—and confusion. That’s because rules about cost basis reporting are changing. But what is it exactly? Put simply, it’s the original amount an investor paid for an investment, adjusted for various items (reinvested dividends, corporate transactions, etc.). It’s the basis for determining how much was gained or lost from an investment and it’s the key to determining taxable gain or loss.

What’s changing?
This tax season and going forward, investors are receiving some help with cost basis reporting, thanks to new regulations. And TD Ameritrade wants to spread the word about how these changes may impact its clients and other investors. Now, brokers are required to report not just the total proceeds from a client’s sale of securities as they have in the past, but also the amount paid for the investment.

The change stems from the Emergency Economic Stabilization Act of 2008, commonly referred to as the “bailout bill,” which now requires mutual fund companies and brokerage firms like TD Ameritrade to report clients’ cost basis, and holding periods to the IRS on their Consolidated Form 1099s when securities are sold.

The law, which was intended to ensure more accurate reporting of gains and losses, will benefit investors in several ways:

  • Cost basis and gain/loss reporting will become simpler and more transparent—you’ll gain a more complete picture of your cost basis and simplify your year-end tax preparation.
  • You’ll gain greater flexibility in specifying the lots you’re trading.
  • You’ll be able to select the tax lot identification method you prefer (e.g., “first-in, first-out" or highest cost) when you make a trade.
  • When you make a transfer, the cost basis information will transfer with the security.

What do investors need to know?

As they prepare their 2011 tax returns, here’s what investors should be aware of:

1.The regulation pertains only to IRS-covered securities in taxable accounts, not to Individual Retirement Accounts (IRAs) and other non-taxable accounts.

2.The new reporting requirements are being phased in over a three-year period.

  • The law currently applies to equities, including foreign securities and American Depository Receipts (ADRs) acquired on or after Jan. 1, 2011, but excluding equities acquired in connection with a dividend reinvestment program (DRIP).
  • It will apply to regulated investment companies (like mutual funds), or securities acquired in connection with a DRIP, that are acquired on or after Jan. 1, 2012.
  • It will apply to fixed income, options, warrants, rights, derivatives and commodities purchased on or after Jan. 1, 2013.

3. TD Ameritrade clients will see cost basis data on the applicable securities in the 1099-B section of their company-issued Consolidated Form 1099 for the tax year 2011.

4. The IRS has completely revamped how individual investors report capital gains and losses on their personal tax returns by requiring completion of a new form (Form 8949), which will list and summarize gain/loss transactions.

5. TD Ameritrade has created a service and support group within its investor service call centers, as well as dedicated content on its website to help educate clients on what this change means for them.

“We understand the need for this regulation and view it as a benefit to our clients. But, we also understand that this is a complicated subject,” said Felix Davidson, managing director of operations at TD Ameritrade. “These changes will lessen the burden of cost basis reporting for investors because we’ll handle it for them. But, we know there will be questions, so we’re doing all we can to help educate clients and make this transition as simple as possible.”

Investors seeking more information on changes in cost basis reporting are encouraged to visit TD Ameritrade’s website for more information, contact TD Ameritrade via phone at 800-669-3900 or speak with an Investment Consultant at any of the company’s 100+ branch locations.

TD Ameritrade does not provide tax advice. We suggest that you seek the advice of a qualified tax-planning professional with regard to your personal circumstances.

About TD Ameritrade Holding Corporation
Millions of investors and independent registered investment advisors (RIAs) have turned to TD Ameritrade’s (NASDAQ: AMTD) technology, people and education to help make investing and trading easier to understand and do. Online or over the phone. In a branch or with an independent RIA. First-timer or sophisticated trader. Our clients want to take control, and we help them decide how—bringing Wall Street to Main Street for more than 36 years. An official sponsor of the 2012 U.S. Olympic Team, TD Ameritrade has time and again been recognized as a leader in investment services. Please visit TD Ameritrade’s newsroom or for more information.

Brokerage services provided by TD Ameritrade, Inc., member FINRA ( ( (


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