Cost Basis

Cost basis is the original monetary amount paid for shares of a security. When you sell or exchange shares of mutual funds or other securities, you may have a capital gain or loss that must be reported to the IRS. To calculate the gains or losses from shares sold, you must know the cost of the different shares that you own. If you previously sold shares of the same security, the cost basis of the shares you still own depends on the method that you use to determine cost basis.

Cost Basis Basics

• What transactions can affect cost basis?
• What is Mutual fund bifurcation?
• What are the reasons for unknown cost basis?
• What cost basis methods are approved by the IRS?
• Can I use cost basis information provided by Fidelity to make investment or tax decisions?
• Why is there a dotted line beneath some of the values?

Entering and Editing Cost Basis

• Can I enter or edit the cost basis information for a security?
• What does the Eligible Lots page show?
• How do I enter or edit the cost basis information for an eligible lot?
• How do I submit updated cost basis information to Fidelity?

Information

• How are distributions calculated and posted to an account?

Related Help Topics

COST BASIS BASICS

What transactions can affect cost basis?

Any transaction that increases or decreases the number of shares in a position can affect cost basis. When you buy or sell shares of a security, the cost basis of your position in that security will change. Depending on the type of security, factors other than the original purchase price of a security can have an impact on cost basis. Events such as splits, spin-offs, and liquidations can all affect cost basis. Consider consulting a tax advisor with your specific questions about calculating gains and losses in your individual tax situation.

Other transactions which can affect the cost basis of your holdings include the following:

• Dividends and capital gains
  Dividends and capital gain distributions that you receive in cash do not affect the basis per share of existing shares. Each time you reinvest dividends or capital gains, you are purchasing additional shares; these purchases may change basis for the total position, but not the per share basis of existing shares. You assume per share basis for the new shares in the same way you would for any other type of purchase.
• Purchase commissions, purchase charges, and purchase fees
  If you buy shares of mutual fund that has a load (sales charge) or transaction fee, include the charge or fee paid as part of the cost basis, Similarly, commissions, fees, and taxes paid when you buy an individual security should be added to cost basis. Adding these charges reduces future capital gains because your original costs have increased.
• Redemption commissions, redemption charges, redemption fees
  How to treat the fee and service charges you incur when you sell shares of a mutual fund or individual security depends on how the sales are reported on your Form 1099-B. Fidelity's 1099-B deducts the fee from the proceeds. However, you can add the fees to the cost basis. Your gain or loss will be the same in either calculation.
• Wash sales
  If you sell shares at a loss and buy additional shares in the same investment 30 days before or after the sale (61-day range), you may not claim the loss on your tax return until you sell the new shares. In these cases, the IRS considers the new shares to have "washed." For example, if you have a dividend reinvestment on 5/31 and an exchange redemption that results in a loss on 6/12 in the same tax year, some or all of the loss from your redemption may be disallowed as a wash sale. The amount of the disallowed loss is added to the cost basis of the new shares.
  
  Fidelity makes no warranties with respect to, and specifically disclaims any potential liability resulting from, tax positions which you make in reliance on wash sale information provided by Fidelity. You should consult your tax advisor for additional information which may be relevant to your individual tax situation.
• Merged funds
  If you own a fund that is merged into another fund, your holding period and total cost basis normally are not affected. However, since the number of shares you have after a merger may be different than the number before the merger, the average cost basis per share changes. If this is the case, when calculating gains and losses you must determine the number of shares acquired in each transaction based on the number of shares received in the merger.
• Transferred shares: inheritances and gifts
  The cost basis of inherited shares is generally the value of the shares on the day the decedent died; however, consult the executor of, or tax advisor to, the estate to determine if cost basis should be determined by reference to a value on an alternate date. To figure the basis of shares received as a gift, you must know the cost basis in the hands of the donor immediately prior to the gift. Additionally, you must know the shares' fair market value at the time you received them. There are additional rules that may apply, so you should consult your tax advisor for assistance in determining the cost basis.
• Return of capital
  A return of capital occurs when a fund's distributions exceed its earnings in a fiscal year. Distributions are not taxable when they exceed earnings, and are reported on Form 1099-DIV. The total basis of the position is reduced by the amount of the non-taxable distributions, but they do not affect the basis per share of existing shares.

What is Mutual fund bifurcation?

A bifurcated mutual fund position using average cost has two sub-positions composed of covered and noncovered tax lots. Each of these sub-positions will maintain its own calculated average cost.

What are the reasons for unknown cost basis?

There are many reasons why cost basis may not be known for some or all of the shares in any position in your brokerage account or mutual fund account. Sometimes, unknown cost basis is simply the result of an account pre-dating cost basis records. Other times, unknown cost basis results from a transfer of shares from one account or account type to another.

Some of the most common reasons for unknown cost basis are:

• Shares are transferred to the Fidelity account from another institution
• Shares were transferred between two accounts registered to different Social Security Numbers
• Shares were transferred between mutual fund accounts and brokerage accounts before August, 1993
• The shares are in a mutual fund account established before 1987
• The shares are mutual fund shares in a brokerage account established before 1982, or general security shares in a brokerage account established before February 1993
• The shares are in a mutual fund that merged with another fund, and cost basis was unknown at the time of the merger
• The shares were established by a spin-off, a tender, or a merger, and the cost basis was unknown at the time of this corporate action. In this case, you will not be able to supply basis.

For information on how to manually enter cost basis when unknown, see Can I enter or edit the cost basis information for a security?

What cost basis methods are approved by the IRS?

The cost basis methods approved by the IRS include:

• Average Cost
  Using the average cost, cost basis is calculated based on the average price paid for all shares held, regardless of holding period. Gains or losses are defined as short-term or long-term based on the assumption that the oldest shares are sold first, even though the average cost is the same for all shares. This method of calculating cost basis is permitted for mutual funds only and cannot be used to calculate cost basis for individual securities such as stocks and bonds. Fidelity uses the average cost method when calculating your cost basis for all mutual fund shares.
• First In, First Out (FIFO)
  Using FIFO, cost basis is calculated using the specific amount paid for shares. This method assumes that the first shares you sell are the first you bought. Fidelity uses FIFO when calculating your cost basis for individual securities, such as stocks and bonds.
• Specific Shares
  Using specific shares, cost basis is determined by you, the shareholder, when you sell the shares. This method lets you identify which shares you are selling, giving you the most control over the amount of realized gains and losses. The IRS requires you to identify specific shares to Fidelity at the time you sell them. You may identify specific shares for sales of individual securities when you submit the trade. You are not permitted to make the determination after the fact.

Can I use cost basis information provided by Fidelity to make investment or tax decisions?

Cost basis (and related gain and loss) information made available to you is not intended, and should not be construed as legal or tax advice. Fidelity makes no warranties with respect to, and specifically disclaims any potential liability resulting from, tax positions which you might take in reliance on such information. You should consult your tax advisor for additional information which may be relevant to your individual tax situation.

Why is there a dotted line beneath some of the values?

A dotted line beneath some of the values tells you the values were calculated using a Factor. If you hold your mouse over the dotted line, a tool tip will appear that describes the calculation in detail.

For certain fixed income products that pay principal, such as a mortgage-backed security, a Factor is used to determine the current face value of the position, as the face value of the position changes over time. Because the product pays principal over its lifetime, most often, the face value of the product deteriorates over time, and therefore, typically, the Factor is less than one. For example, to determine the Most Recent Value of a fixed income product with a Factor, Price is multiplied by Quantity and Factor, and that number is divided by 100.

For factored securities, as well as all fixed income securities, both the Most Recent Value and Previous value use the price determined as of the previous day's close of business valuation. If a portion or all of the position is sold during the day, although the Value fields will reflect the intraday change in Quantity, the Price and Factor of the security will continue to be based on the previous day's close of business valuation.

ENTERING AND EDITING COST BASIS

Can I enter or edit the cost basis information for a security?

If the cost basis for a security is unknown, click Enter Cost in the Cost Basis column to display the Eligible Lots page. If you previously entered a cost basis for a security, you can edit the cost basis by clicking the dollar figure in the Cost Basis column. You cannot update the basis for shares if the cost basis has been provided by Fidelity.

Note: Cost basis updates submitted today are pending and will appear on the next business day. The most recent cost basis information that you entered overrides any previously provided cost basis for the selected lots.

What does the Eligible Lots page show?

The Eligible Lots page identifies the shares of a position for which you may provide or update cost basis information. The total number of shares that are eligible for updating are shown in the Lot Quantity field.

How do I enter or edit the cost basis information for an eligible lot?

On the Eligible Lots page, click Update Basis for the lot to display the Update Basis page. Before you enter or edit cost basis information, gather background documents such as trade confirmations and account statements. You may also want to review the details of your Consolidated Form 1099.

For each lot, enter the date acquired, the quantity, and the cost basis. If you purchased your shares over multiple dates or at different prices, you may split the tax lot into multiple lots (up to 100) by clicking Add Row. For example, if you have 200 shares with unknown cost basis. representing two separate purchases of 100 shares each, you can provide the cost basis for the first 100 shares, then click Add Row to provide the cost basis for the remaining 100 shares. Each time you add a row, review the amount in the Quantity Remaining field to see how many shares still have unknown cost basis.

Note: If you're updating cost basis for an average cost position, you must provide information for all the unknown shares. If you are adding information for a FIFO position, you can provide the cost basis for only a portion of the shares and leave some as unknown.

How do I submit updated cost basis information to Fidelity?

When you're ready, click Preview Updates. Review the information on the Preview Update page carefully. If the information is correct, click Submit to submit your updates to Fidelity and to view the Update Basis Confirmation page. Cost basis information will be updated on the next business day.

INFORMATION

How are distributions calculated and posted to an account?

Mutual funds that accrue income daily, such as many bond and money market funds, pay a monthly dividend equal to the sum of each day's share balance multiplied by the fund's daily milrate. Therefore, the distribution amount you receive may not equal the monthly milrate sum multiplied by your month end balance. Changes in your fund's share balance throughout the month will affect the distribution you receive at the end of the month.

Mutual funds that do not accrue income daily, such as many equity funds, may declare a distribution on a specified date (often monthly or quarterly). The amount of distribution you receive in this instance is equal to the number of shares you hold on the record date multiplied by the per share distribution amount.

Related Help Topics

• Current Values
• Viewing Lots
• Year-to-Date Sales
• Position Cost
• Realized Gain/Loss