Cost basis is generally the dollar amount you paid for your shares. It's adjusted for items such as returns of capital, certain corporate actions, and any sales charges or transaction fees. Your choice of cost basis method is very important because it can impact your tax liability when you sell shares. You'll need your cost basis information when you file your income tax return to determine gains and losses on any shares you sell in a taxable (nonretirement) account. Cost basis is not a measure of performance. If you want to gauge the performance of your Vanguard investments, log on to your account, then select Personal performance under the My Accounts dropdown.
Covered shares are shares for which Vanguard must report cost basis information to the IRS on Form 1099-B when sold. Covered shares are stocks that you acquired on or after January 1, 2011, and mutual funds,* dividend reinvestment plans (DRIPS), and most ETFs** that you acquired on or after January 1, 2012. Noncovered shares are shares that you acquired before those effective dates.
The default cost basis method for stocks held in your Vanguard Brokerage account is first in, first out (FIFO). The default for Vanguard mutual funds, as well as non-Vanguard funds held through the Vanguard Brokerage FundAccess® service, is average cost (AvgCost).
Our Cost basis resource center provides detailed information about the available methods and resources to help you elect a cost basis accounting method.
For any sale of covered shares, you'll receive a transaction confirmation that lists the sale details, including the cost basis method used. For covered shares, Vanguard will also provide cost basis information on IRS Form 1099-B. Cost basis information is available at any time by logging on to your account and selecting Taxes & Income under the My Accounts dropdown.
For an overview of what Vanguard is required to report to the IRS on Form 1099-B, see our Cost basis resource center. Note: You're always responsible for reporting cost basis on any sale or exchange in a taxable (nonretirement) account when filing your annual tax returns.
No. Cost basis information isn't available for money market and stable value funds, profit-sharing and money purchase pension plans, educational savings and 529 plans, 403(b)(7) accounts, and annuity contracts.
As a service to our clients who hold Vanguard IRAs, we offer cost basis information for IRAs opened after July 11, 2011. Vanguard isn't able to calculate cost basis for IRAs opened prior to that date. Because cost basis isn't an accurate reflection of performance, we recommend that you log on to your account on vanguard.com and select Personal performance from the My Accounts dropdown.
You can change your cost basis method during the execution of a trade, or by logging on to your account, selecting Account maintenance under the My Accounts dropdown, then choosing View/change cost basis method. You can also change it in writing by completing and returning our Cost Basis Method Election Form. Because of regulatory requirements, we can't accept requests to change to or from average cost by telephone.
To see your cost basis and gain/loss information, log on to your account, and from the My Accounts dropdown, select Taxes & Income, or refer to the total cost details on each statement you receive. Cost basis information is also included on Form 1099-B.
Vanguard's cost basis accounting service previously offered only the average cost method for mutual funds and first in, first out (FIFO) method for stocks held in a Vanguard Brokerage account. If you've previously sold shares and reported your gains or losses to the IRS using any other cost basis methods, Vanguard's records may not match yours. That's because we won't know which method you used and which shares you sold from your account.
No. Vanguard won't apply your cost basis method to any prior sales. Changing your cost basis method applies only to current and future sales of covered shares—those purchased after January 1, 2011.
Under current IRS regulations, a wash sale occurs if a shareholder realizes a loss on the sale of an investment and a substantially identical investment is purchased within 30 days before or after the sale; this loss would be disallowed. For shares covered by the new legislation that took effect January 1, 2011, Vanguard is required to track only those wash sales that result from the purchase and sale of identical securities (securities with the same CUSIP number) within the same account. To view information on wash sales such as these, log on to your account, select Taxes & Income under the My Accounts dropdown, and choose Cost basis. Wash sale information is displayed in the Total Gain/Loss column of the Realized Gains/Losses tab. Vanguard doesn't track wash sales across accounts with different registrations—for example, between your individual account and your joint account or between your individual account and your IRA. However, you're still obligated to correctly account for all wash sales when filing your income tax return.
If I use the average cost method for my covered and noncovered shares, how will Vanguard determine which shares are being sold?
If you use the average cost method for covered and noncovered shares, Vanguard will sell your oldest (noncovered) shares first. Once all noncovered shares are sold, Vanguard will sell the covered shares. You'll also have two average cost figures—one for your noncovered shares and one for your covered shares.
If you're using average cost prior to electing a method, and you sell or transfer covered shares, you've locked into average cost for those shares that were acquired before you changed your method. If you elect a new method, however, the shares acquired afterwards will be calculated with that new method.
If you're using average cost prior to electing a new method, and you don't sell or transfer shares, your covered shares will revert back to original cost. The new method you elect is applied to the shares that were acquired prior to the election and after the method election it's applied to the covered shares.
I've been using specific identification for mutual fund sales. Do Vanguard's records include lot information for my noncovered shares?
No. When you sell any noncovered mutual fund shares, Vanguard is able to provide only average cost information to you. That's because we won't know which cost basis method you might have used to report gains or losses to the IRS in the past or which tax lots remain in your account if you sold some of the shares before 2012. Regardless of the method you choose, you're responsible for reporting the basis and any gains and losses on sales to the IRS when you file your tax return each year.
How does my cost basis method affect my automated sale options—such as automatic withdrawal, automatic exchange, or checkwriting?
If you have an automatic withdrawal, automatic exchange, or a checkwriting option set up on a particular Vanguard fund, it's especially important to select a cost basis method for that fund. If you don't choose a method, we'll continue to use our default method—average cost—for all automated sales of shares. If you select specific identification (SpecID) as your preferred cost basis method, we'll still use first in, first out (FIFO) for the automated transaction because it's not possible to select the shares to be sold in automated transactions.
A return of capital is a return of your investment in the fund that reduces your cost basis. Vanguard Managed Payout Funds and Vanguard REIT Index Fund often have returns of capital. For these funds, the amount that represents a return of capital is calculated in January and February for the prior year. We'll provide the most current information throughout the year on these funds; however, the calculation is incomplete until the final return of capital has been factored into the distribution amounts. See each fund's prospectus for more information.
Less complex bonds, which are generally bonds or other debt obligations with fixed yield and maturity dates, as well as most options, began being covered by the regulations on January 1, 2014. More complex bonds, which are generally bonds or other debt obligations that don't have fixed yield and maturity dates, as well as certain options involving more complex bonds, will begin being covered by the regulations on January 1, 2016.
To elect accounting methods, you must first request the appropriate form by calling Vanguard at 800-669-0514. Once you've completed the form, mail it back by December 31 of the year for which the elections are made if you want your elections considered when Vanguard generates your IRS Forms 1099.
Vanguard offers five accounting methods for bonds—“amortize bond premium,” “currently include accrued market discount,” “accrue market discount based on a constant yield,” “treat all interest as original issue discount (OID),” and “translate interest income and expense at the spot rate.” For details about each method, download the Bond Amortization and Accrual Elections information sheet.
To provide the most accurate and up-to-date capital gain, adjustments to cost basis for bonds are made daily to your online cost basis information. So, unlike your stock and mutual fund investments, any income reporting adjustments that affect your cost basis will be applied to your bonds daily.
Yes, the methods you elect apply to all bonds or other debt instruments acquired within that tax year; therefore, you can elect methods at any time during the year and your elections will be applied retroactively. However, we must receive the completed Bond Amortization and Accrual Election Form by December 31. For details about fixed income accounting methods, download the Bond Amortization and Accrual Elections information sheet.
To determine if one of your investments is covered, log on to your account at vanguard.com and from the My Accounts dropdown, choose Cost basis. Then select the appropriate account(s). Next, choose either Unrealized gains & losses or Realized gains & losses. Under the description, select Show details. The status of each holding is listed in the "Date acquired" section. Note: For holdings under "Realized gains & losses," the shares are considered covered if there's a blank space under "Date acquired."
*Excluding money market funds.
**ETFs that are unit investment trusts (UITs) and meet the regulated investment company requirements. If you're not sure whether this applies to your ETF, check with the ETF issuer.