TD Ameritrade

 

  • Emergency Economic Stabilization Act

The Emergency Economic Stabilization Act of 2008 requires that brokerage firms and mutual fund companies report their customers' cost basis and holding period on covered securities to the IRS on their Consolidated Form 1099s when securities are sold. Prior to 2011, firms such as TD Ameritrade reported only sale proceeds. The goal of the act is to help ensure the accurate reporting of gains and losses, and to simplify your year-end tax preparation.

 

  • Covered securities and non-covered securities

Covered securities are those subject to cost basis reporting rules and securities for which TD Ameritrade is required to report cost basis information to the IRS. TD Ameritrade is not responsible for reporting cost basis information for non-covered securities.*

What's changed so far?

The Emergency Economic Stabilization Act is being implemented in phases. From 2011 to 2013, equities purchased after January 1, 2011, equities purchased under a dividend reinvestment program (DRIP) after 2012, and mutual funds purchased after January 1, 2012, became covered securities under the new law.

As of 2014, the law applies to options/stock warrants and basic debt instruments acquired as of or after January 1, 2014. This includes options with one or more specified securities, and an option on an index in which the components are substantially specified securities (for example, equity options and non-1256 index options). The 2014 regulations also apply to basic debt instruments, such as municipal and corporate bonds, that meet certain criteria.

What's new for Tax Year 2016

As of 2016, the law applies to more complex debt instruments acquired on or after January 1, 2016. This will include, but is not limited to:


  • Debt instruments with stepped interest rates
  • Convertible debt instruments
  • Separate trading of registered interest and principal securities (STRIPs)
  • Debt that can be paid in kind
  • Foreign debt
  • Instruments that require interest or principal payments in non-U.S. currency

Exclusions—non-covered securities

The new laws will not apply to all securities. Notable exceptions include:


  • Compensatory options
  • Broad-based index options that are treated like regulated futures contracts
  • Short-term debt (securities issued with a term of one year or less)
  • Debt subject to accelerated repayment of principal. This exclusion includes Real Estate Mortgage Investment Conduit securities (REMICs)
  • Partnerships
  • Unit Investment Trusts (UITs)

*It should be noted that it is still the taxpayer's obligation to report the cost basis for any security bought and sold on his or her tax return.

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