What Is Form 1099-SEC and How Do I Report It?

If you have sold securities like stocks or bonds, you might be looking for a “Form 1099-SEC” to report the transaction. The Internal Revenue Service (IRS) does not have a form with that name. The document you will receive from your financial institution is Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. This form is sent to both you and the IRS by your broker and details the proceeds from sales you made during the tax year. Understanding this form is the first step in accurately reporting your capital gains and losses.

Understanding Your Form 1099-B

You will receive Form 1099-B from your broker, typically by mid-February. The form itemizes each sale, providing a description of what was sold, and contains the information you will need for your tax return.

Box 1d, “Proceeds,” shows the total cash you received from a sale before subtracting commissions or fees, which you must report as the sales price. Box 1e, “Cost or Other Basis,” is what you paid for the security, including any purchase commissions. This figure represents the original value of the asset for tax purposes.

The transaction dates are found in Box 1b (Date Acquired) and Box 1c (Date Sold). These dates determine the holding period of your investment and whether a gain or loss is short-term (held one year or less) or long-term (held more than one year).

Box 12 indicates if the securities sold were “covered” or “noncovered.” For covered securities, your broker must report the cost basis in Box 1e to the IRS. For noncovered securities, the broker does not report the basis, and you are responsible for calculating and reporting it. This often applies to shares acquired before 2011.

Box 1g, “Wash Sale Loss Disallowed,” shows a loss you cannot deduct immediately. A wash sale occurs if you sell a security at a loss and buy a substantially identical one within 30 days before or after the sale. This disallowed loss is used to adjust the cost basis of the replacement shares.

Reporting Security Transactions on Your Tax Return

To report your transactions, you transfer the information from Form 1099-B to Form 8949, Sales and Other Dispositions of Capital Assets. This form lists the details of each sale and supports the summary figures on your tax return. You will use a separate Form 8949 for your short-term and long-term transactions.

For each sale on Form 8949, you will list the following information from your 1099-B:

• A description of the property
• The date you acquired it (column c)
• The date you sold it (column b)
• The proceeds from the sale (column d)
• The cost basis (column e)

The proceeds and cost basis figures you enter must match what is on your Form 1099-B, especially for covered securities.

After detailing all transactions on Form 8949, you calculate the gain or loss for each sale in column (h). The totals are then carried over to Schedule D, Capital Gains and Losses. Schedule D summarizes these totals to calculate your net capital gain or loss, with Part I for short-term transactions and Part II for long-term ones.

The final calculation on Schedule D determines your tax liability. Short-term capital gains are taxed at your ordinary income tax rates, the same as your wages. Long-term capital gains are taxed at lower rates, which can be 0%, 15%, or 20% depending on your taxable income. This distinction makes the accurate reporting of acquisition and sale dates important.

Common Reporting Scenarios and Adjustments

Reporting is not always as simple as copying numbers from Form 1099-B. Certain situations require you to make adjustments to calculate your tax liability correctly. One common adjustment involves wash sales. The loss disallowed in Box 1g of your 1099-B is added to the cost basis of the new, replacement shares you purchased. This adjustment is made on Form 8949 by entering code “W” in column (f) and the disallowed loss amount in column (g).

Another scenario is correcting the cost basis reported by your broker. The basis in Box 1e might be incorrect or missing, especially for noncovered securities. This can also happen with inherited stock, where the basis is the fair market value on the date of death, or with shares from an employee stock purchase plan (ESPP), which have special rules.

If the basis on your 1099-B is wrong, you must still enter that incorrect basis in column (e) of Form 8949. To make the correction, enter adjustment code “B” in column (f). Then, in column (g), enter the adjustment amount needed to arrive at the correct basis for calculating your gain or loss.

Keeping accurate records is the best way to handle these adjustments. For inherited stock, you will need documentation of the fair market value at the time of death. For ESPP shares, your employer should provide statements detailing any ordinary income recognized, which increases your basis. By accurately reporting these adjustments on Form 8949, you ensure you are not overpaying taxes.