Understanding Your 1099-B: Capital Gains Form
The 1099-B decides whether your ETF gains are taxed at ordinary rates or the lower long-term rates. A missing or zero basis can quietly inflate your tax bill.
Don't have time? Here's what you need to know:
- 1The 1099-B reports each ETF sale's proceeds, basis, and holding period; long-term gains (held >1 year) are taxed at 0/15/20% versus ordinary rates for short-term.
- 2Noncovered lots may have blank basis, and a missing figure can lead the IRS to tax the full proceeds — always supply it.
- 3Your cost-basis method (FIFO vs specific-ID) must be set before the trade and directly controls the gain reported.
- 4Brokers flag wash sales only within one account; cross-account wash sales are your responsibility.
What the 1099-B Actually Reports
Every time you sell ETF shares in a taxable account, your broker records the transaction on Form 1099-B. For each sale it lists the proceeds, the cost basis, the acquisition and sale dates, and the resulting gain or loss. These figures flow onto Form 8949 and then Schedule D, where your total capital gain or loss for the year is computed. In a tax-advantaged account such as an IRA, sales generate no 1099-B because the activity is not taxed annually.
The most consequential field is the holding period. Shares held one year or less produce short-term gains taxed at your ordinary-income rate, which can be substantially higher. Shares held more than one year produce long-term gains taxed at 0/15/20%. Selling a winning position just a few days before the one-year mark can needlessly convert a favorably taxed long-term gain into an expensive short-term one.
Tip: Check the acquisition date before selling an appreciated lot. Crossing the one-year mark can drop your tax rate from your ordinary bracket to the long-term 0/15/20% schedule.
Covered vs Noncovered: Who Tracks Your Basis
The 1099-B sorts your sales into covered and noncovered securities. Covered securities, generally ETF shares purchased in recent years, have their cost basis reported to both you and the IRS by the broker. Noncovered securities, typically older lots, may show proceeds but a blank or unreported basis, leaving you to supply it. The distinction governs how much trust you can place in the form.
If a noncovered lot's basis is missing and you do not provide it, the IRS may treat your cost as zero and tax the entire sale proceeds as gain. That can turn a modest real gain into a massive phantom one. Dig out old purchase confirmations, account statements, or DRIP records to reconstruct the basis of any noncovered shares before you file.
Important: A blank basis on a noncovered sale can lead the IRS to assume zero, taxing your full proceeds. Always supply the real basis for older lots.
How Your Cost-Basis Method Shapes the Numbers
When you have bought the same ETF at different prices and sell only part of your position, the cost-basis method determines which shares are considered sold and therefore how large the reported gain is. The default at most brokers is first-in, first-out (FIFO), which sells your oldest, often lowest-basis, shares first and tends to produce larger gains. Specific identification lets you hand-pick which lots to sell, giving you direct control over the tax outcome.
Because the method is decided at the time of sale, not at filing, you must instruct your broker before the trade settles if you want anything other than FIFO. Specific-ID is the most powerful choice for tax management: you can sell high-basis lots to minimize a gain, or deliberately sell low-basis lots in a low-income year. The 1099-B simply reports whatever method governed each sale.
| Method | Which shares sell first | Typical effect |
|---|---|---|
| FIFO (default) | Oldest lots first | Often larger gains; mostly long-term |
| Specific identification | Lots you choose | Maximum control over gain/loss |
| Highest-cost first | Highest-basis lots | Minimizes current gain |
| Average cost | Blended basis (mutual funds) | Simple, but less control |
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Wash Sales and the Box You Must Check
If you sold an ETF at a loss and bought a substantially identical security within 30 days before or after, the wash-sale rule disallows the loss, and your broker will flag the disallowed amount on the 1099-B. The disallowed loss is not gone forever; it is added to the basis of the replacement shares, deferring the benefit until you sell those. But the broker only sees wash sales within that one account.
Wash sales that cross accounts, for instance selling at a loss in your taxable brokerage and buying the same fund in your IRA or your spouse's account, will not appear on the 1099-B at all, and you are still required to honor the rule. This is the single biggest gap between what the form reports and what you actually owe, and it is where careful tax-loss harvesters get tripped up.
A Quick Review Checklist Before You File
Tax software imports the 1099-B automatically, but a five-minute review catches the errors that cost real money. Confirm that every sold lot shows a cost basis, that the holding periods look right, and that any expected loss was not unexpectedly disallowed as a wash sale. Cross-check noncovered lots against your own records, since those are the ones most likely to be wrong or blank.
- Every sale shows a non-zero, plausible cost basis.
- Holding periods correctly split short-term from long-term.
- Wash-sale adjustments match your own loss-harvesting activity.
- Noncovered lots reconciled against your purchase records.
- Reinvested-dividend lots are included in your total basis.
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Frequently Asked Questions
What does the 1099-B tell me?
It reports each ETF sale in your taxable account: the proceeds, the cost basis, the dates bought and sold, and whether the resulting gain or loss is short-term or long-term. These figures feed Form 8949 and Schedule D to compute your total capital gain for the year. No 1099-B is issued for sales inside an IRA or Roth IRA.
Why is my cost basis blank or wrong on the 1099-B?
Blank basis usually means the lot is 'noncovered,' typically older shares the broker is not required to report basis for. You are responsible for supplying the correct figure. If you leave it blank, the IRS may treat your basis as zero and tax the full proceeds, so reconstruct the basis from old confirmations or statements before filing.
How does my cost-basis method affect the 1099-B?
The method decides which shares are treated as sold when you sell part of a position. FIFO, the common default, sells your oldest lots first and often shows larger gains. Specific identification lets you choose the exact lots, giving you control to minimize or harvest gains. You must set the method with your broker before the sale; the 1099-B simply reflects it.
Will my 1099-B show wash sales?
It shows wash sales that occur within that single brokerage account, flagging the disallowed loss. It will not catch wash sales across different accounts, such as repurchasing the same ETF in your IRA or your spouse's account within 30 days. You are still required to honor the rule for those, so track loss-harvesting across all your accounts yourself.
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Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.