Cost Basis Overview

What is cost basis?

Cost basis is the cost of the shares investors purchased, including reinvested dividends and capital gains distributions. The cost is adjusted for any applicable sales charges or transaction fees. When investors sell shares in a taxable account, the cost basis accounting method they choose helps determine how gains or losses are calculated. The IRS treats the sale of mutual fund shares differently, depending on their purchase date, and classifies shares as covered or noncovered.

What are covered shares?

Covered shares are those classified by the IRS as being purchased or reinvested in 2012 and beyond. Additional cost basis information is reported to the IRS on Form 1099-B, including:

• The amount of the mutual fund sale.
• The cost basis amount when covered shares are sold.
• If the shares were held short term (sold within one year of purchase) or long term (sold more than one year after purchase).
• If the sale included a wash sale and the amount.

Note: The IRS will rely upon the cost basis information on Form 1099-B for covered shares. Please consult your tax advisor to ensure you are accurately reporting the values on your personal tax filing.

What are noncovered shares?

Noncovered shares are those classified by the IRS as being purchased or reinvested before 2012, or shares that do not have complete cost basis information, regardless of purchase date.

• Shareholders are responsible for reporting all gains or losses on the sale of their shares.
• We are required to report sales of mutual funds to the IRS, but shareholders are not required to use the cost basis information we provide. You or your tax advisor may use an alternative method.
• As a service, we provide average cost information on sales of noncovered shares on eligible accounts. Note that there may be circumstances preventing a specific account from having cost basis information, and that we do not provide average cost for retirement, education, or money market accounts.

What cost basis methods for selling shares are available?

1) Average cost:

This is the most common method for mutual funds and can be determined using the following calculation:

Total cost of all shares ÷ total number of shares in the account = average cost per share

Since 2012, your account may maintain two separate average costs: one average for covered shares, and a separate average for noncovered shares.

2) First-in first-out (FIFO):

The shares purchased first are sold first.

3) Specific lot identification:

• You choose the shares (or lots) to sell.
• Your gain or loss will vary, depending on which shares you choose.
• For sales where you cannot specify your lots, such as checkwriting or systematic withdrawals, a secondary cost basis method is available. If you do not select a secondary method, FIFO is used.

Exceptions: If you select specific lot identification, you may select from both covered and noncovered shares for sales. Cost basis information provided for noncovered shares may not reflect your actual cost. Refer to your personal records to determine the cost of lots sold.

4) For covered shares, we offer additional specific identification methods:

• Last-in first-out (LIFO): The shares purchased last are sold first.
• High cost: Highest-cost shares are sold first.
• Low cost: Lowest-cost shares are sold first.
• Loss/gain utilization: Shares with the smallest tax consequence are sold first. (For sales that would result in a loss, short-term shares are sold first, followed by long-term shares. For sales that would result in a gain, long-term shares are sold first, followed by short-term shares, because long-term capital gains rates are more favorable.)

5) Special handling for noncovered shares:

• As a service, we provide average cost information on sales of noncovered shares on eligible accounts. Note that there may be circumstances preventing a specific account from having cost basis information, and that we do not provide average cost for retirement, education, or money market accounts.
• You are not required to use the noncovered cost basis information we provide. You or your tax advisor may use an alternative method for your personal tax filing.
• If you have noncovered shares, they will be sold first and will use average cost, if available.
• We do not report cost basis information to the IRS for noncovered shares.

To designate a cost basis method other than average cost:

Log in to your account and select Update Cost Basis Method, or complete and mail in a Cost Basis Options form (PDF).

Any tax or legal information on this website is merely a summary of our understanding and interpretations of some of the current income tax regulations and is not exhaustive. Investors should consult their tax advisor or legal counsel for advice and information concerning their particular situation. Allspring Global Investments does not provide accounting, legal, or tax advice or investment recommendations.