Cost Basis Resource Center


What is cost basis?

Cost basis is the purchase price of a mutual fund, less any sales charge, plus reinvested dividends and capital gains distributions.

The original basis of mutual fund shares depends on how the shares were acquired.  The original basis for shares that were purchased or acquired through reinvestment of a dividend is generally the original cost of the shares.  If the mutual fund has had distributions that were identified as a return of capital, then the basis would be adjusted by the amount of capital that was returned to the shareholder. This basis would be referred to as an adjusted basis.

Shares acquired through inheritance will generally have the market value of the shares on or around date of death as the adjusted cost basis. Shares acquired as gift will generally retain the adjusted cost basis of the donor.

Why is it needed?

Cost basis reporting regulations require mutual fund companies like Federated to display redemptions of Covered shares (shares purchased after January 1, 2012) on 1099-B tax forms. Cost basis, cost basis reporting method, and gain/loss for each redemption are also noted.

Cost basis rules also require mutual funds to report Covered share redemption cost basis to the Internal Revenue Service (IRS). Form 1099-B segregates your redeemed shares into the appropriate required categories:

  • Covered Short-Term Gain/Loss
  • Non-Covered Short-Term Gain/Loss
  • Covered Long-Term Gain/Loss
  • Non-Covered Long-Term Gain/Loss
  • Non-Covered Shares Gain/Loss Unknown

Form 1099-B clearly indicates which of these categories is reported to the IRS. The tax laws assign different tax rates to these categories.  For your convenience, instead of displaying the total redemption transactions, Federated displays redeemed shares by category.  

While cost basis information will appear on Form 1099-B for Covered and Non-Covered shares, cost basis for Non-Covered shares (purchased prior to January 1, 2012) is not reported to the IRS.  Please consult a tax professional regarding your cost basis reporting and questions.

For more information, or to change your cost basis election, please contact one of our Client Service Representatives. They can help with your questions and send an informational cost basis statement on request.  

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