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stock cost basis reporting in 2011
Old 12-15-2010, 06:22 PM   #1
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stock cost basis reporting in 2011

I read that starting in 2011, your financial institute/broker will have to report the cost basis of your stock transactions on the 1099. I have a couple of stocks with Scottrade with no purchase price info(I bought the stocks with Ameritrade long time ago and the purchase price was somehow lost when Scottrade took over.) I was wondering is it a good idea to sell them before the new law kicks in(assuming the transactions will be more likely scrutinzed after the new law.) The stocks are not going anywhere anyway.
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Old 12-15-2010, 07:13 PM   #2
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It doesn't matter. If you sell them now or in the future, you will need to provide the basis just like always.

I think the new rule is only for assets purchased after 2010 anyways. You might want to check on that.

If you don't know the basis, you can avoid the whole issue by giving away your shares to charity, maybe give 50 shares a year away until they are all gone.
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Old 12-15-2010, 07:33 PM   #3
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It doesn't matter. If you sell them now or in the future, you will need to provide the basis just like always.
right, I understand that. What I'm saying is that if I sold now I could use an approximate date/price by searching the historical price while doing my return whereas if I sell next year or later, my brokerage firm wouldn't be able to do that for me(at least I don't think so)
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Old 12-15-2010, 09:15 PM   #4
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Right. Your brokerage wouldn't be able to do it for you this year, nor next year, nor any year in the future. They simply do not have the data.
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Old 12-16-2010, 12:14 AM   #5
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Originally Posted by ER_Hopeful View Post
right, I understand that. What I'm saying is that if I sold now I could use an approximate date/price by searching the historical price while doing my return whereas if I sell next year or later, my brokerage firm wouldn't be able to do that for me(at least I don't think so)
My understanding is that this kicks in for securities bought after 2010 -- the basis will be attached to the securities, and will travel with them to wherever they may be transferred. For securities bought before 2011, the old system (the honor system) will be in place, as it is now.
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Old 12-16-2010, 08:53 AM   #6
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My understanding is that this kicks in for securities bought after 2010 -- the basis will be attached to the securities, and will travel with them to wherever they may be transferred. For securities bought before 2011, the old system (the honor system) will be in place, as it is now.
Well, this is going to get interesting.

A friend of mine is doing a fair amount of trading, including options against stock he owns. While he says he has always tried to comply with the spirit of the tax laws on these trades, he has taken some accounting shortcuts from time to time if it didn't reduce his tax. An example would be to not go through all the details of some interim wash sales if he completely liquidated all holdings in that stock that year (the end result is the same tax-wise, just less entries and less chance of error with the extra steps). I've done the same.

The past couple years, he has become paranoid about getting audited, and is making a concerted effort to cross every 't' and dot every 'i'. Before I go into a rant, I'll just cover some factual information which would seem to make it impossible for brokers to provide accurate cost basis information, and some that just make me question how they are going to comply with the letter of the law:

1) It's been discussed here, but selling at a loss and buying that same product in another account or even in an IRA will trigger a wash sale. How is your broker going to track this?

2) Options on a stock you hold can effect holding periods and trigger wash sales. Are the brokers ready for this? And this is one I'll call 'impossible' for them to comply with. Why? Because Congress has 'fuzzy' rules. It is affected by how far in/out the money the option is, but Congress did not actually provide any hard cut-offs on this. What is a tax payer to do? What is a broker, who can't sit and make judgment calls on this?

Wash Sales Between Stocks and Options

Quote:
What this means for the stock and options trader is that if you take a loss on a stock or an option, and then buy back that same stock, or an option on that same stock, whether the option is the same month and strike price or not, you have a wash sale. The same holds true if you close an option position for a loss and then buy the same underlying stock within the 30 day window.

There is no clarification in the tax law as to how far "in or out of the money" the option is, or what month and year the option expires.
3) AFAIK, the IRS has never ruled on what "substantially equivalent" holdings are for a wash sale. How are brokers going to deal with this?

A funny thing about wash sales, they don't want to let you take a loss at the time this way, but they do allow for 1035 exchanges, which is essentially the same thing but for delaying the gain.


I'll skip the rant - it should be obvious by now....

Maybe there is a silver lining - maybe brokers have enough power to push through some clarification of this stuff (mini-rant: do Congress's job for them)


-ERD50.
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Old 12-16-2010, 12:01 PM   #7
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No rant needed. I understand your point about wash sales and different accounts. My understanding (and it may not be that good) is that only transactions that can definitely be determined to be a wash sale will be reported as such -- the sell and buy have to be in the same account and with the same CUSIP number. It is not perfect. The tax code is maddening.

The OP has a valid question, and there is no need for him to sell in 2010. Because his shares were bought before 2011, whenever he does sell he will be able to report his basis on a best efforts basis just as he could if he sold in 2010.
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Old 12-16-2010, 12:11 PM   #8
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ERD...


I think that the brokerage firm will report wash sales when the 'know'... like you sold for a loss and bought back in time (TD does that for me right now)...


I think YOU will be responsible for any other wash sales.. because as you say there is not way a brokerage firm will know...

I bet there will be a lot of people who put down what the broker gives them and when audited will then find out there is a problem... we will wait and see...
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Old 12-16-2010, 01:06 PM   #9
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I don't see how a wash sale has any effect on what goes on the 1099B supplied by your broker.

You are still responsible for what goes on your Form 1040 Schedule D which is where wash sales get reported and the basis is adjusted.
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Old 12-16-2010, 01:25 PM   #10
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This is what Schwaub is going to do with wash sales:

How will this legislation affect wash sales?
Schwab will adjust losses on wash sales that occur in the same account with identical shares (same CUSIP) to the IRS. Although
you are not allowed to claim the loss on a wash sale, the disallowed amount is added to the cost of the repurchased security,
enabling you to recognize the loss when the security is finally sold. This rule only applies to losses. Gains must be reported even
if the same or similar shares are purchased within 30 days of the sale. Schwab will be required to report the disallowed amount
to the IRS.
It is possible that you could have other situations that contribute to a wash sale that brokers are not required to report.


http://www.mutualfundstore.com/Clien...basis-FAQs.pdf

It looks like Vanguard is doing the same:

What is a wash sale and does Vanguard track them?
The IRS prevents a shareholder from claiming a loss on shares that were bought within 30 days before or after being sold, commonly called a "wash sale." To view information on wash sales, log on to your account and select Taxes & Income under the My Portfolio tab. Wash sale information is displayed in the Total Gain/Loss column of the Realized Gains tab. Vanguard does not track wash sales across accounts with different registrations; for example, between your individual account and your joint account or between your individual account and your IRA.
https://personal.vanguard.com/us/hel...sisContent.jsp
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