Understanding the Lack of Cost Basis on 1099-B: Common Causes and Solutions

When you receive a 1099-B form from your brokerage, itrsquo;s important to understand what information itrsquo;s providing, and what it may not be displaying, especially concerning the cost basis. If the 1099-B does not show a cost basis, there could be several reasons behind this. In this article, we will explore these reasons, along with potential solutions.

Causes of Missing Cost Basis on 1099-B

Brokerage Reporting

Not all brokerages are required to report cost basis for all types of securities. This means that if the securities in question were acquired before specific regulations were implemented, such as the cost basis reporting regulations that began in 2011, your brokerage might lack the necessary information to report it accurately. Additionally, some security types, particularly those that are less commonly traded or have complex structures, may not have their cost basis reported.

Short Sales and Securities Types

In the case of short selling, the concept of cost basis may not apply in the same way as for regular stock transactions. Furthermore, certain security types or transactions may not have a cost basis reported. This includes inherited securities or securities received as gifts.

Errors or Omissions

Errors or omissions can occur on the 1099-B form itself. Verifying your brokerage records is always a good idea to ensure the correct cost basis information is present. If you believe there should be a cost basis reported and it is missing, it could be due to an error or omission.

Transfer of Assets

If you transferred securities from another brokerage or account, the cost basis information might not have been transferred correctly. This can lead to discrepancies in the 1099-B form.

Common Reasons for Missing Cost Basis on 1099-B

Missing Information

The brokerage may not have complete information about the cost basis of the securities you sold. Sometimes, this information is missing or incomplete, leading to the omission of the cost basis on the 1099-B form.

Non-Covered Securities

If you sold securities that were acquired before the IRS started requiring brokers to report cost basis, typically for securities acquired before a certain date, the cost basis may not be reported on the 1099-B. This is often true for securities acquired before the 2012 regulations were implemented.

Special Cases

Certain types of securities or transactions may not have a cost basis reported. These include inherited securities, where the cost basis is often the value as of the date of death, and securities received as gifts, where the cost basis might be partly one death and partly the other, depending on the specifics of the trust or estate.

Guidance and Solutions

If you are unsure about your cost basis, here are a few steps you can take:

Check Your Transaction History: Review your brokerage account and transaction history to identify any discrepancies or missing information. Consult a Tax Professional: Seek advice from a tax professional who can help clarify your tax liabilities and provide guidance on how to handle the lack of cost basis on your 1099-B form. Review IRS Guidelines: Consult the official IRS guidelines and regulations to understand your obligations and rights regarding cost basis reporting.

It is crucial to stay informed and proactive about your tax reporting to avoid any potential issues with the IRS. By understanding the reasons for missing cost basis and seeking guidance when needed, you can ensure your tax compliance remains in good standing.