Cost basis reporting

[m2m]

Mutual fund shares bought 15 years ago; transferred to another broker 5 years ago; sold in 2012. Broker used for sale does not have cost basis information. Unable to trace back orignal cost from original broker; lost records between residence moves.

Is selling broker going to report cost basis as 'unknown'? Any suggestions on how to obtain cost basis for Schedule D?

Thanks and best wishes for a joyous holiday season!

[mwcpa]

Under the law it is your responsibility to maintain records to support your basis in assets.

There are tools to help you "determine" cost if records are severely damaged.

Did you "reinvest" dividends?

1. You should call the fund family where you originally purchased the asset and ask them to provide copies of statements during your time with them. More thank likely they will charge you.
2. You should look at old tax returns (if you reinvested dividends) to find the dollars of income earned.
3. There are services, could be costly, that can research and reconstruct the basis. I was just introduced to this professional product to assist with that. I plan to use this tool when needed, it will be helpful with splits and spin offs. I do plan to charge "extra" for this too.

It is up to you to exhaust all reasonable efforts to reconstruct the lost records. "Estimation" (with documentation of how you came up with it) is a reasonable method only when you exhaust all possibilities. If you call the mutual fund company and they say they will provide the records for $100 and you do not want to spend the money then the IRS will not accept your estimate and may disallow your unsupported parts of your cost basis. If you use a pro, be careful of the charlatans who make up the cost for you, that is illegal and you will bear the brunt of the IRS.

[Deleted]

Google "Tax Optimization Tool" and you'll find a great software option to not only accurately calculate cost basis on stocks and mutual funds (that includes wash sales, corporate actions, mergers, spinoffs, reinvestment of dividends, etc.) but helps to assess the best sales methodology to declare in order to minimize capital gains. Great tool and site. Saved me some cash on closing out a mutual fund as well as selling part of a stock holding. Worth checking out. Takes away these headaches in trying to figure out your cost basis. That's more important than ever now that here are penalties for getting it wrong.

[mwcpa]

be careful, a tool like the one noted is "fine" but it cannot take the place of the requirement to maintain original records. stock splits, spin offs and the like can be confusing and these tools do help, but it cannot and should not replace record-keeping required by the law unless all efforts to obtain original source data are exhausted (assuming you lost data)

[rangerj]

If you cannot find records of the cost basis then you should have a discussion with a tax professional about making a "disclosure" of the fact that your deduction for cost basis is an estimate. The disclosure should include the explanation of how the cost basis estimate was arrived at and the efforts made to find the actual amounts. Any source of authority relied upon for the estimate, such as a Revenue Ruling, Regulation, or court case, should be cited (if any). This could save you from penalties.

[rangerj]

Message deleted by rangerj.

[mwcpa]

good added point Ranger regard the proper disclosure of the position.....

estimating as a last resort is fine (you must exhaust all reasonable efforts to obtain original source data), but you should disclose that fact and give the basis for it as noted by Ranger.