Cost Basis Information

Answers to Common Questions

Answers to Common Questions About Cost Basis Reporting

The Internal Revenue Service (IRS) requires Franklin Templeton 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.

You should carefully review the cost basis information provided by Franklin Templeton and make any additional basis and holding period adjustments that are required when reporting these amounts on your federal and state income tax returns. Shareholders remain responsible for complying with all federal and state income tax laws when filing their income tax returns.

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. Your cost basis may be subsequently adjusted for wash sales, deferred sales charges and other items. When these shares are sold or exchanged, you will generally have a capital gain or a loss on the transaction that is subject to federal and state income taxes. The capital gain or loss equals the amount realized on the sale minus the cost basis of the shares sold and must be reported on your federal and state income tax returns.

    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 different methods for calculating cost basis, and investors may choose the method they believe is appropriate given their personal tax situation.

  • No. Cost basis reporting does not apply to retirement, money funds, 529 College Savings Plan accounts and Coverdell Education Savings Accounts (ESAs).

  • Franklin Templeton shareholders can choose between two methods:

    1. Specific Share Identification (SSI) — this method requires that you identify which tax lots 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.
    2. Average Cost Method (ACM) — this method requires the calculation of an average basis for all shares in a tax account which is used to determine the capital gain or loss on a specific transaction.

    Franklin Templeton has selected Average Cost as our default cost basis method. If you sell or exchange covered shares, and would like to select a different cost basis method, you can do so at the time that you request the sale or exchange of your shares. You may want to consult your tax advisor to determine which cost basis method is best for you.

  • 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 cost basis reporting by mutual fund companies.

    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 regulations. There is no legal requirement for Franklin Templeton to report the cost basis of these shares; however, the shareholder is still responsible for reporting this information on their tax return.

  • If you do not choose a cost basis method prior to your first sale or exchange of covered shares, Franklin Templeton will process the request using our default cost basis method of average cost. However, you will still have the option to change your method for any future transactions.

  • 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 for covered shares is selected at the time of the transaction, Franklin Templeton's default method of Average Cost will be used for calculating the cost basis of shares sold.

    If you choose Specific Share Identification as your method, you (or your financial advisor) will need to identify the specific shares to be sold or exchanged or provide lot relief order instructions at the time of the transaction.

    Noncovered shares will be processed with Average Cost as the cost basis method.

  • You may request changes to your method and standing lot relief order at the time of the transaction or in advance by the following methods:

    • Online: Sign in, select 'Cost Basis Center', and click 'Modify' under the 'Cost Basis Method' column.
    • Telephone: Contact Shareholder Services directly. Be sure to have your account number on hand.
    • Writing: Indicate your account number(s), cost basis method selection and standing lot relief order. 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 SLRO instructions (via online, telephone or in writing) that would apply to all future transactions. An SLRO is an instruction that you provide to Franklin Templeton that indicates the 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 the first shares sold or exchanged.
    • Last In, First Out (LIFO) — The last shares acquired are 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 an SLRO associated with your account, then shares will be sold or exchanged in FIFO order.

  • If you sell or exchange covered shares, you will receive a Form 1099-B, reporting the cost basis of those shares. The Form 1099-B will also include the gross proceeds received from the sale or exchange and whether the gain or loss was short-or long-term. This information will also be reported to the IRS.

  • Yes. You are still required to report the cost basis of the shares sold or exchanged, as well as capital gains and losses on your transactions for both covered and noncovered mutual fund shares on your income tax returns.

  • Cost basis information may be displayed on your statements or when you log in to your account(s) online.

  • We will continue to use Average Cost for accounts which we voluntarily calculate the cost basis for noncovered shares (not all accounts qualify).

  • Unfortunately, cost basis for noncovered shares may not be calculated for all accounts due to the lack of data for certain transactions. In this situation, you should consult your tax advisor if you sell or exchange noncovered shares.

  • You can expect to see information about the date of acquisition (generally the purchase date), date of sale or exchange, type of gain or loss (long-term or short-term), quantity sold (number of shares), cost basis amount, wash sale loss disallowed, whether the shares were covered or noncovered, and if the basis was reported to the IRS.

  • No. Cost basis reporting is only required when shares are sold or exchanged from your account.

For additional information on cost basis, contact your tax advisor or visit the IRS website.