Cost basis

Cost basis reporting rules

In October 2010, the Treasury Department and the IRS released mandatory cost basis regulations that were enacted as a result of the Economic Stabilization Act of 2008. The new regulations require brokers and mutual fund companies to provide cost basis reporting to the IRS for mutual fund shares acquired after January 1, 2012. Please note that retirement, education savings, and money market accounts are not affected by these regulations.

What is cost basis?

Cost basis is the cost of shares you purchase, including reinvested dividends and capital gains distributions. The cost is adjusted for any applicable sales charges or transaction fees. When you sell shares in a taxable account, the cost basis accounting method you choose helps determine how your gain or loss is calculated.

How is cost basis reported?

Putnam Investments, along with all mutual fund companies, is required to report cost basis to shareholders and the IRS on IRS Form 1099-B whenever shares of mutual funds purchased on or after January 1, 2012, are sold. This rule does not affect retirement accounts, 529 college savings plans, Coverdell education savings plans, and money market accounts.

What cost basis method will be used?

Putnam allows shareholders to select the cost basis method for future purchases and sales. If you did not choose a method previously, Putnam's default method is Average Cost.

If a shareholder would like to continue using the Average Cost reporting method, no action is needed. Shareholders can also change to a different cost basis accounting method by completing the Cost Basis Election Form and returning it to Putnam. Shareholders may change the method that applies to their shares on a prospective basis at any time.

How is cost basis calculated?

The example below assumes a single purchase of shares using the Average Cost method:

George bought 25 shares of Putnam Focused Equity Fund at a price of $20 per share, including expenses. George's cost basis is $500.

Capital gain or loss
George sold 25 shares of Putnam Focused Equity Fund at a price of $25 per share. George's capital gain would be calculated as: $625 redemption proceeds - $500 cost basis = $125 capital gain.

Covered or non-covered
Assuming George bought the shares after January 1, 2012, and it was not a retirement or an educational savings account, then these shares would be covered. The cost basis will be reported on George's 1099-B.

For more information about the regulations and the different cost basis accounting methods available to shareholders, please see our Cost Basis Q&A. Please call Putnam with any questions at 1-800-225-1581.