Cost Basis FAQ

What is cost basis?
Cost basis is generally the price you paid for your shares, adjusted for return of capital, certain corporate actions, and any sales charges or transaction fees. Cost basis is an important calculation used to determine gains and losses on any shares you sell in a taxable (non-retirement) account. You will need this information to prepare your tax return.

What is the new cost basis legislation?
New IRS regulations, the Emergency Economic Stabilization Act of 2008, require financial service companies to track and report cost basis for taxable accounts beginning on the effective dates below:

  • January 1, 2011: for stock securities purchased through a brokerage firm
  • January 1, 2012: for mutual fund purchases
  • January 1, 2013: for bond and option securities purchased through a brokerage firm

What are covered securities? What are non-covered securities?

  • Covered - Purchases made on or after January 1, 2012, for mutual funds, ETFs and dividend reinvestment plans
  • Non-covered refers to securities acquired prior to the effective dates.

What cost basis methods are available?
The following cost basis methods may be available to you:


Average Cost (ACST) – A method to calculate the gain/loss by adding up the number of shares owned as well as the total dollar amount of the shares; the dollar amount is divided by the number of shares. The average price of covered securities is calculated separately from non-covered securities, as if they were in two accounts. This is called bifurcation.


First In, First Out (FIFO)
– A standing order to sell the oldest shares in the account first.


Specific Lot Identification (SLID)
– The shareholder designates specific shares for their redemption.

  • Last In, First Out (LIFO) – A standing order to sell the newest shares in an account first.
  • High Cost, First Out (HIFO) – A standing order to sell the most expensive shares in the account first.
  • Low Cost, First Out (LOFO) – A standing order to sell the least expensive shares in the account first.
  • Loss/Gain Utilization (LGUT) – A method that evaluates losses and gains and then strategically selects lots based on that gain/loss in conjunction with a holding period.

What is the purpose of the cost basis method I choose?
The cost basis method determines which tax lots are sold first. A tax lot consists of one or more shares of a security purchased at the same price on the same day.


What cost basis method is best for me? How can I decide?

It depends on your personal tax situation. You should consult with a tax advisor, CPA, Financial Planner, or Investment Manager to decide what option is best for you.


Am I able to change my election?
If you have elected to use Average Cost as your cost basis method, you may revoke your election at the earlier of one year after it was made or up to the date of the first redemption or transfer of shares, whichever comes first. You are always allowed to change a cost basis method prospectively, no matter what cost basis method you choose.


Can I make my election online?

If you are currently able to access account information and conduct transactions for your account electronically, you may also elect your cost basis accounting method electronically. To choose your cost basis method electronically, please login to your account. Any questions related to your account access should be directed to SunAmerica Mutual Funds at 1.800.858.8850. Otherwise, you may choose your election method by completing the Cost Basis Election Form and submitting it back to SunAmerica via fax or mail.


What happens if I don’t make my election by January 1, 2012?

If you do not make your cost basis election by January 1, 2012, we will use SunAmerica’s default method which is Average Cost to calculate cost basis on your account.


Who's responsible for reporting cost basis, gains and losses to the IRS?

Taxpayers are required to report the sale of capital assets on their Form 1040 individual income tax returns using Schedule D. Financial institutions provide some help by reporting the transaction to both investors and to the IRS.

Before 2011, financial institutions have only been required to report the proceeds of investment sales — not the actual gain or loss. Under new federal rules your fund company or broker will report to the IRS gains and losses realized from the sale of:

  • Individual stocks purchased after Jan. 1, 2011
  • Mutual fund shares purchased after Jan. 1, 2012
  • Bonds, options and other securities purchased after Jan. 1, 2013

Collectively, investments acquired after the above dates are called "covered securities," because they are covered by the new regulations. It's important to note that investors will still be solely responsible for calculating and reporting gains and losses realized on the sale of non-covered securities — those acquired before the above dates.

Under the new regulations, transfer agents such as SunAmerica have until February 15 of the year following the calendar year when the mutual fund is sold to mail Form 1099-B (Proceeds From Broker and Barter Exchange Transactions.) (Note: The taxpayer filing deadline has not changed as a result of the new cost basis reporting regulations.) Please keep in mind that if certain events occur such as a return of capital, a wash sale, or if adjusted cost basis was provided to the transfer agent after the original tax form was mailed, then a corrected Form 1099-B will be mailed showing the new cost basis information after the adjustment was applied to the cost basis.


How will my gain/loss be reported?
You will receive a Form 1099-B showing sales proceeds for each closing sale transaction. Basis information will be reported along with the calculated gain or loss on the trade. The gain or loss will be classified on the form as short-term or long-term based on the acquisition date of the security. The information reported to you on Form 1099-B will also be reported to the IRS.


When do I have to submit an election form?

You will need to have your election form submitted before January 1, 2012. If you have not provided your election by then, Average Cost, the funds default method, will apply to your account.


What is my cost basis for an investment I received as a gift?

If the donor's basis is less than the value of the gift at the time the gift is made, you generally must use the donor's basis. If it isn't, you would use the following:

  • The donor's basis if it's greater than the sales price.
  • The fair market value on the date of the gift if it's greater than the sales price. You're considered to have neither a gain nor a loss if the sales proceeds are greater than the fair market value on the date of the gift and less than the donor's basis.

Can my broker make my election for me?
The broker who is the registered representative of record may provide the election over the phone or electronically via DST Vision.


What's a wash sale?

A wash sale occurs when you sell an investment at a loss, and repurchase a substantially identical investment within a 61-day period that extends from 30 days before you take your loss until 30 days after. Losses from wash sales are not deductible. Instead, the loss is added to the cost basis of the repurchased investment. Any wash sale for covered securities will be reported to the IRS and you on Form 1099-B.

For more information, please contact us.

None of the information in this website should be considered legal and tax advice. You should consult your legal or tax advisers for information concerning your own specific tax situation. The forms and numbers shown in this website are for illustrative purposes only.

For further information, you can call us at: 800-858-8850 x6010 or e-mail us at: mutualfundinquiry@sunamerica.com