Cost Basis Reporting for Mutual Funds
Mutual fund companies are required to report the adjusted cost basis on certain sales of shares acquired on or after January 1, 2012, to both investors and the Internal Revenue Service (IRS). MainStay sends its shareholders a Cost Basis Election Form that allows you to choose your preferred cost basis method for "covered" shares (shares purchased after January 1, 2012).
MainStay Funds Cost Basis Reporting FAQs
What is cost basis and why is it important?
- 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 has changed?
- Mutual fund companies and brokerage firms are responsible for reporting gross proceeds to the IRS when an investor sells securities. The investor is responsible for maintaining the cost basis of the security, calculating the gain or loss, and reporting it to the IRS. In 2008, as part of the Economic Stabilization Act (H.R. 1424), Congress amended the Internal Revenue Code to require brokers, including mutual fund companies, to report to customers and the IRS the customers' cost basis in securities (including mutual fund shares) sold or redeemed. For MainStay Fund shares acquired on or after January 1, 2012, we will track your cost basis and provide it to you and the IRS for tax reporting purposes on IRS Form 1099-B. Shareholders must use the information provided.
Which cost basis methods are available at MainStay?
- Average Cost (ACST)—A method for valuing the cost of covered shares in an account by averaging the effect of all covered transactions in the account. The gain/loss is calculated by taking the cumulative dollar cost of the covered shares owned and dividing it by the number of covered shares in the account. Non-covered securities are calculated separately from covered securities and are not reported to the IRS.
- First In First Out (FIFO)—A standing order to sell the oldest shares in the account first.
- 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.
- Specific Lot Identification (SLID)—The shareholder needs to designate which specific shares to redeem when placing their redemption request. Please note that Average Cost cannot be used as a secondary accounting method. The secondary accounting method will only be activated if the lots chosen are no longer available.
- 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.