Cost Basis Information

Answers to Common Questions

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.

  • 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 accounts, 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 the Average Cost Method 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 should consult your tax advisor to determine which cost basis method is best for you.
  • Covered shares 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 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.

  • Franklin Templeton will process the request using our default cost basis method of Average Cost.

  • Yes. You have the option to change your method for future transactions.
  • You may request changes at the time of the transaction or in advance by the following methods:

    • Online: Sign in, select your cost basis eligible account, select 'Cost Basis' option and then select the edit symbol next to the method in 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 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.

  • 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.

    • 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 shares were covered or noncovered
    • If the basis was reported to the IRS
  • Fair Market Value (FMV) is the last quoted public redemption price on the date of the gift or on the date of the decedent’s death.
  • Depreciated gift lots are when the donor’s adjusted basis is more than the FMV at the time the shares are gifted.

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