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 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.*
Broker reporting changes since 2011
The Emergency Economic Stabilization Act was implemented in phases. The following became covered securities:
- Equities purchased after January 1, 2011
- Equities purchased under an enrolled dividend reinvestment program (DRIP) after 2012
- Mutual funds purchased after January 1, 2012
- Equity options, non-1256 index options, stock warrants, and basic debt instruments after January 1, 2014
- More complex debt instruments including convertible debt, variable and stepped interest rates, STRIPs and TIPs acquired after January 1, 2016
Cost basis reporting exclusions
To date, certain securities are still considered noncovered by default. These 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).
- Unit Investment Trust (UITs)
It is important to understand that these reporting requirements affect the broker, and are not necessarily the same for the taxpayer. The taxpayer is responsible for reporting any security bought and sold on his or her tax return.