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Answers to common questions

The Internal Revenue Service (IRS) requires mutual fund companies to provide cost basis information to both shareholders and the IRS when certain mutual fund shares acquired on or after January 1, 2012, are exchanged or sold .

Shareholders should carefully review the cost basis information provided by Franklin Templeton and Putnam Investments, and make any additional basis and holding period adjustments that are required when reporting these amounts on their 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 and should check with their tax professional if they have any questions..

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).

Shareholders can choose between two methods:

  1. Specific Share Identification (SSI) — this method requires the shareholder to identify which tax lots they want to sell or exchange at the time of the transaction and uses the adjusted basis of those shares to determine the 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.

Note: SSI has different variations where the shareholder can identify which shares they want sold. Refer to 'For accounts with specific share identification, how can the standing lot relief order be changed?'

Franklin Templeton and Putnam Investments have selected Average Cost Method as their default cost basis method. If a shareholder exchanges or sells covered shares, and would like to select a different cost basis method, they can do so at the time they request the exchange or sale of shares. 

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.

The request will be processed using the Average Cost Method.

Yes. Shareholders have the option to change the method for covered shares on future transactions.

  • Online: Sign in, select the 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. 
  • Writing: Indicate the account number(s), cost basis method selection and standing lot relief order. The request must be signed by the shareholder before mailing.

Contact Putnam Shareholder Services at (800) 225-1581.

SLRO instructions can be provided in advance for future transactions or at the time of the exchange or sale (via online, telephone or in writing). The following relief orders are available:

  • First In, First Out (FIFO) — The first shares acquired are the first shares exchanged or sold.
  • Last In, First Out (LIFO) — The last shares acquired are the first shares exchanged or sold.
  • Highest In, First Out (HIFO) — The shares with the highest basis are the first shares exchanged or sold.
  • Lowest In, First Out (LOFO) — The shares with the lowest basis are the first shares exchanged or sold.
  • Specific Lot Identification (SLI) — Specific shares are selected to be exchanged or sold.

 

If the shares being exchanged or sold are not specified when the transaction is requested and there is not an SLRO associated with the account, then shares will be sold or exchanged in FIFO order.

If covered shares are exchanged or sold, the shareholder will receive a Form 1099-B, reporting the cost basis of those shares.

This information is available on shareholder statements and online.

For accounts that qualify, Average Cost Method will be used.

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, the shareholder should consult their tax professional. 

  • 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.

For additional information on cost basis, shareholders should contact their tax professional or visit the IRS website.