Basis records and proving your basis

Your basis is the amount of your investment in property for tax purposes. You use it to figure gain or loss when you sell or otherwise dispose of property. You also use basis to figure depreciation, amortization, depletion, and casualty losses. Your records therefore support more than the calculation you make when you sell.

To make these computations, you need accurate documentation for each component of your property's basis. That requirement covers the items that go into your basis calculation, rather than just the final amount you report. When your calculation depends on several items, your records must support those items so you can make the computations for which basis is used.

For your sale or other disposition, the general statutory rule uses adjusted basis. Your adjusted basis starts with basis determined under section 1012 or another applicable provision. The rule also recognizes applicable provisions concerning corporate distributions and adjustments, partners and partnerships, and capital gains and losses. You then apply the adjustments provided in section 1016.

Your records need to support the basis that applies to your property and the items affecting that basis. The general adjusted basis rule applies whenever you acquired the property. It does not limit the calculation to recently acquired property or replace the applicable basis provisions with a single rule for every type of acquisition.

If you lost or did not keep the records needed to determine your basis in securities, contact your broker for help. Your broker may have reported your basis on Form 1099 B, Form 1099 DA, or a substitute statement. The IRS instructions identify specific boxes you can check for that information.

Your Form 1099 B may omit basis information under the reporting rules for noncovered securities. When you report the sale of a noncovered security on a separate Form 1099 B, you may check box 5 and leave boxes 1b, 1e, 1f, 1g, and 2 blank. Those permitted omissions include the basis box.

If you check box 5, you may instead choose to report the information requested in those boxes. You will not be subject to penalties under section 6721 or 6722 for reporting that information incorrectly. This rule concerns the information you choose to report in boxes 1b, 1e, 1f, 1g, and 2 when box 5 is checked.

If your securities statement has no basis amount and your own records are missing, you can still contact your broker for help. Whether you misplaced the documentation or never retained it, this guidance covers both situations.

If you filed Form 1099 B and then receive a transfer statement indicating that the security is a covered security, you must file a corrected Form 1099 B within 30 days of receiving the statement. The correction requirement has an exception tied to how long ago you filed the original form.

You do not have to file that corrected Form 1099 B if you receive the transfer statement more than 3 years after you filed the original Form 1099 B. Both timing rules matter: the general correction deadline runs from your receipt of the transfer statement, while the exception measures time from your original filing.

Generally, you can use the average basis method for stock in most mutual funds or other regulated investment companies if you meet the account conditions. You must leave the shares with a custodian or agent in an account and acquire identical shares of stock at different prices in that account.

The method is also generally available for stock you acquired after 2010 in connection with a dividend reinvestment plan that meets Regulations section 1.1012-1(e)(6). For this plan stock, eligibility likewise requires custody through an agent or custodian and purchases of identical stock at differing prices within your account.

If you receive property whose fair market value on the gift date was lower than the donor's basis, keep records of both amounts. You may need either amount depending on your eventual sale price. Your records therefore need to preserve both the donor's basis and the property's fair market value on the date of your gift.

For virtual currency you receive as a gift, your basis for determining gain equals the donor's basis plus any gift tax the donor paid on the gift. Your basis for determining loss equals the lesser of the donor's basis or the virtual currency's fair market value when you received the gift.

Your documentation of the donor's basis matters directly for gifted virtual currency. If you have no documentation substantiating the donor's basis, your basis is zero. Keep that consequence connected to this specific rule for virtual currency you receive as a gift.

If you buy ether on Exchange A, transfer it to a wallet you control, and later move it to Exchange B for sale, Exchange B may know your sale price without knowing your original purchase information. You may receive Form 1099 DA showing proceeds while still needing records that support your basis.

In that transfer sequence, Exchange B may lack your original cost, acquisition date, fees, or holding period. Your sale information and your acquisition information may therefore be held in different records. Receiving a proceeds statement does not establish that the selling exchange has those details about your earlier purchase.

When you receive Form 1099 DA, the recordkeeping question is whether you can connect the form to your wallet histories, exchange records, transfer activity, and supportable basis calculations. Your form is part of that connection. You still need the underlying information required to support the basis calculation associated with the reported transaction.