Cost Basis Reporting and Your Account
Post on: 16 Март, 2015 No Comment
Answers to Common Questions About Cost Basis Reporting
The Internal Revenue Service (IRS) requires Franklin Templeton, and other mutual fund companies, to provide cost basis information to both shareholders and the IRS when certain mutual fund shares acquired on or after January 1, 2012, are sold or exchanged.
Below are answers to some common questions about cost basis reporting and the impact these reporting requirements will have on your Franklin Templeton account(s).
The cost basis of mutual fund shares is generally the amount paid for the shares when they were initially purchased, including any sales charges paid on the purchase of the shares. Your cost basis may be subsequently adjusted for wash sales, deferred sales charges and other items. When these shares are sold or exchanged, you may have a gain or a loss on that transaction, and you may have to pay taxes on any gains earned from the transaction. The capital gain or loss
Capital Gain or Loss Capital Gain
If the selling price of the shares is greater than the adjusted basis of the shares at the time of the exchange or redemption.
Capital Loss
If the selling price of the shares is less than the adjusted basis of the shares at the time of the exchange or redemption.
equals the amount realized on the sale minus the cost basis of the shares sold and must be reported to the IRS on your tax return.
In short, cost basis is used to determine capital gains and losses for tax purposes when mutual fund shares are sold or exchanged. There are various methods for calculating cost basis, and investors may choose the method they feel is appropriate given their personal tax situation.
Franklin Templeton shareholders can choose between two methods:
- Specific Share Identification (SSI) this method requires that you identify which tax lots
Tax Lot A grouping of shares in the same tax account with the same basis and holding period, such as all shares purchased at the same time and at the same price. If separate purchases are made on the same day, then separate tax lots will be created for each purchase.
you want to sell or exchange at the time of the transaction and use the adjusted basis of those shares to determine your gain or loss.
Capital Gain or Loss Capital Gain
If the selling price of the shares is greater than the adjusted basis of the shares at the time of the exchange or redemption.
Capital Loss
If the selling price of the shares is less than the adjusted basis of the shares at the time of the exchange or redemption.
There are two types of capital gains and losses:
1. long-term
2. short-term
Default Cost Basis Method The method that will be utilized by the mutual fund company for accounts in which no method is previously noted or chosen at the time of the exchange or redemption. Franklin Templeton’s default method will be Average Cost.
If the shareholder’s account is held in a brokerage firm account, the firm may select a different default cost basis method. In these cases, shareholders should contact the firm to obtain additional information regarding cost basis reporting.
. If you sell or exchange covered shares
Covered Shares Generally, shares acquired by purchase, including dividend reinvestment, on or after January 1, 2012.
Shares acquired by gift, inheritance or other transfer occurring on or after January 1, 2012, may also be considered covered shares.
Covered shares generally refer to mutual fund shares that were acquired by purchase, including dividend reinvestment, on or after January 1, 2012, and are subject to the mandatory cost basis reporting requirement.
Noncovered shares generally refer to mutual fund shares acquired by purchase, including dividend reinvestment, prior to January 1, 2012, and thus, are not covered by the cost basis reporting regulation. There is no legal requirement for Franklin Templeton to report the cost basis of these shares.
If shares are received by transfer from a brokerage firm into a Franklin Templeton account, they will be considered noncovered shares if the brokerage firm does not provide cost basis information at the time of the transfer or states that the shares being transferred are noncovered.
Covered Shares Generally, shares acquired by purchase, including dividend reinvestment, on or after January 1, 2012.
Shares acquired by gift, inheritance or other transfer occurring on or after January 1, 2012, may also be considered covered shares.
. Franklin Templeton will process the request using our default cost basis method
Default Cost Basis Method The method that will be utilized by the mutual fund company for accounts in which no method is previously noted or chosen at the time of the exchange or redemption. Franklin Templeton’s default method will be Average Cost.
Even though it is not mandatory that you make a cost basis method selection, we do encourage you to speak with a tax advisor prior to requesting any monetary transactions for your account(s). A tax advisor can help you determine which specific method will be the most beneficial for your tax situation.
If you have not already done so, you, or your financial advisor acting on your behalf, may be asked to choose a cost basis method prior to the transaction being completed. If no method is selected at the time of the transaction, Franklin Templeton’s default method
Default Method The method that will be utilized by the mutual fund company for accounts in which no method is previously noted or chosen at the time of the exchange or redemption. Franklin Templeton’s default method will be Average Cost.
Average Cost Method A method used for calculating the cost basis of shares being exchanged or redeemed by taking an average cost for all shares in the tax account at the time of the exchange or redemption. For tax accounts with Average Cost as their cost basis method, shares will be exchanged or redeemed in a First In, First Out (FIFO) order.
will be used for calculating the cost basis of shares sold.
If you choose Specific Share Identification
Specific Share Identification A method used for calculating the cost basis of shares being exchanged or redeemed by taking the adjusted basis of the specific lots selected for the transaction. Shareholders may either select the specific lots for each transaction or designate a standing lot relief order on the account.
as your method, you (or your financial advisor) will need to identify the specific shares for the transaction or provide lot relief order
Lot Relief Order The order in which shares from an account will be exchanged or redeemed for cost basis purposes. The following relief orders are available:
1. First In, First Out (FIFO)
2. Last In, First Out (LIFO)
3. Highest In, First Out (HIFO)
4. Lowest In, First Out (LOFO)
5. Specific Lot Identification (SLI)
instructions at the time of the transaction.
You will only need to provide a cost basis method for covered shares
Covered Shares Generally, shares acquired by purchase, including dividend reinvestment, on or after January 1, 2012.
Shares acquired by gift, inheritance or other transfer occurring on or after January 1, 2012, may also be considered covered shares.
. as noncovered shares
Noncovered Shares Generally, shares acquired by purchase, including dividend reinvestment, before January 1, 2012.
Shares acquired by gift and inheritance after that date may also be considered noncovered shares.
Exchanges and redemptions of noncovered shares are not subject to annual cost basis reporting by mutual fund companies to the Internal Revenue Service.
will be processed with
Average Cost
Average Cost Method A method used for calculating the cost basis of shares being exchanged or redeemed by taking an average cost for all shares in the tax account at the time of the exchange or redemption. For tax accounts with Average Cost as their cost basis method, shares will be exchanged or redeemed in a First In, First Out (FIFO) order.
as the cost basis reporting method.
If you would like to select a cost basis method other than Average Cost, please contact a financial or tax advisor who can help you determine which specific method may be appropriate for your tax situation. You may also request changes to your method and standing lot relief order
Standing Lot Relief Order (SLRO) An instruction on an account provided by the shareholder to automatically apply a lot relief order to all future exchanges and redemptions.
at the time of the transaction or in advance by the following methods:
Standing Lot Relief Order (SLRO) An instruction on an account provided by the shareholder to automatically apply a lot relief order to all future exchanges and redemptions.
Applies only to those shareholders who have chosen Specific Share Identification (SSI) as their cost basis method.
. Be sure to sign your request before mailing .
You can either inform us of the order in which to sell or exchange shares at the time of the transaction, or you may provide us with Standing Lot Relief Order (SLRO) instructions (via telephone or in writing ) that would apply to all future transactions. A SLRO is a pre-determined instruction that you provide to Franklin Templeton that instructs shares to be sold or exchanged in a particular order. The following relief orders are available:
- First In, First Out (FIFO) — The first shares acquired are generally the first shares sold or exchanged.
- Last In, First Out (LIFO) — The last shares acquired are generally the first shares sold or exchanged.
- Highest In, First Out (HIFO) — The shares with the highest basis are the first shares sold or exchanged.
- Lowest In, First Out (LOFO) — The shares with the lowest basis are the first shares sold or exchanged.
- Specific Lot Identification (SLI) — Specific shares are selected to be sold or exchanged.
If the shares being sold or exchanged are not specified when the transaction is requested and you do not have a SLRO associated with your account, then shares will be sold or exchanged in FIFO order.
If you sell or exchange covered shares
Covered Shares Generally, shares acquired by purchase, including dividend reinvestment, on or after January 1, 2012.
Shares acquired by gift, inheritance or other transfer occurring on or after January 1, 2012, may also be considered covered shares.
. you will receive a Form 1099-B
