How to Report 1099-B Supplemental Information

When you receive a Form 1099-B from your brokerage firm, it details the proceeds from your transactions during the tax year. While the main part of the form provides figures like sales proceeds and cost basis, the supplemental information section often contains additional data. This extra information can be confusing but is necessary for accurately reporting your investment activities.

Decoding Common Supplemental Information Entries

The supplemental data on a Form 1099-B provides details that are important for your tax return, even though they may not be officially reported to the IRS in the main boxes. This information helps you make necessary adjustments to avoid overpaying or underpaying your taxes.

Another common entry is a wash sale loss disallowed. A wash sale happens if you sell a security at a loss and then buy a substantially identical security within 30 days before or after the sale. The loss from such a sale is temporarily disallowed for tax purposes, though it is added to the cost basis of the new replacement shares.

You might also see a return of capital listed. This is a distribution you receive that is not paid out of the company’s earnings and profits; instead, it is considered a return of your original investment. A return of capital is not taxable when you receive it; however, it reduces your cost basis in the security, which will affect the amount of capital gain or loss you realize when you eventually sell the investment.

Adjusting Your Cost Basis Using Form 8949

Use the supplemental data to make necessary adjustments on Form 8949, Sales and Other Dispositions of Capital Assets. This form details each of your security sales and is the mechanism for correcting the cost basis information your broker reported. The totals from Form 8949 are then carried over to Schedule D, Capital Gains and Losses.

For each transaction on your 1099-B requiring an adjustment, you will make a separate entry on Form 8949. At the top of Part I (for short-term transactions) or Part II (for long-term transactions), you must check the box that corresponds to how your broker reported the transaction. For example, you would check Box A or D if your broker reported the cost basis to the IRS, even if you need to make an adjustment. If the basis was not reported, you would use Box B or E.

Use columns (f) and (g) on Form 8949 to make the adjustment. Column (f) is for entering a specific code that explains the reason for the adjustment. For instance, you would enter code ‘W’ if you have a disallowed wash sale loss or code ‘B’ if the basis reported by your broker is incorrect for other reasons, such as including a return of capital.

In column (g), you enter the actual dollar amount of the adjustment. If you are reporting a wash sale loss disallowed of $100, you would enter $100 in column (g) as a positive number. This amount effectively increases the sale’s gain or decreases its loss, ensuring the disallowed loss is not claimed. The net adjustment in column (g) is then combined with the proceeds and cost basis to calculate the correct gain or loss in column (h).

Reporting Other Types of Supplemental Data

Not all supplemental information from your Form 1099-B results in a cost basis adjustment on Form 8949. Some data points require reporting on different tax forms, while others are purely for your own records. Knowing where to report these other items is important for filing a complete and accurate tax return.

If your supplemental data shows foreign tax paid on investment income, this amount is not adjusted on Form 8949. Instead, you can choose to claim this amount as either a tax credit or a deduction. To claim the credit, you would file Form 1116, Foreign Tax Credit. Claiming the credit is often more beneficial than taking a deduction, but Form 1116 can be complex.

Accrued market discount occurs when you purchase a bond on the secondary market for less than its face value, and a portion of that discount has accrued by the time you sell it. This accrued amount is treated as taxable interest income, not as a capital gain. This amount should be reported on Schedule B (Interest and Ordinary Dividends) and is not part of the capital gain or loss calculation on Form 8949.

The supplemental section often distinguishes between realized and unrealized gains or losses. Realized gains and losses are from transactions that have been completed through a sale and must be reported on your tax return. Unrealized figures reflect the current value of assets you still own and are for your reference only, as a taxable event has not yet occurred.