Form 1099-B: Proceeds From Broker and Barter Exchange Transactions (2012)

What Form 1099-B Is For

Form 1099-B is an information return that reports the sale of stocks, bonds, mutual funds, commodities, and other securities, as well as bartering transactions. If you sold investments through a brokerage account or exchanged goods or services through a barter exchange in 2012, you should receive this form from your broker or the barter exchange.

Think of Form 1099-B as your broker's report card to both you and the IRS about what you sold during the year and for how much. The form shows the proceeds (money you received) from selling investments, and starting in 2012, it includes significantly more information than in previous years—including cost basis (what you originally paid) for certain securities. This expanded reporting was designed to help ensure accurate tax reporting and make it easier for taxpayers to calculate their capital gains and losses.

The IRS receives a copy of every Form 1099-B issued to you, so the information must match what you report on your tax return. You'll use the information from this form to complete Form 8949 and Schedule D when filing your tax return, which ultimately determines whether you owe capital gains tax or can claim a capital loss deduction.

When You’d Use Form 1099-B (Late/Amended)

Normal Timeline: Brokers and barter exchanges must send you Form 1099-B by February 15, 2013 (for tax year 2012). This is different from most other 1099 forms, which are due by January 31—the extra time allows brokers to gather the complex cost basis information required under the new rules.

If You Receive a Corrected Form: Sometimes brokers discover errors and issue corrected 1099-B forms. If you receive a corrected form after you've already filed your tax return, you'll need to file an amended return using Form 1040-X. You have three years from the original filing deadline to file an amended return and claim a refund if the correction shows you overpaid taxes.

Late Forms: If you haven't received your Form 1099-B by mid-February and you know you had brokerage transactions during 2012, contact your broker immediately. Don't delay filing your tax return—you're still required to report all investment sales even if you didn't receive a 1099-B. You can use your own records (trade confirmations, account statements) to complete your tax return, but be prepared to explain any discrepancies if the IRS questions your return later.

Key Rules for 2012

Covered vs. Noncovered Securities

This distinction is the biggest change for 2012. A "covered security" is one for which your broker must report cost basis to the IRS. A "noncovered security" is one where the broker only reports the sale proceeds, not what you paid for it.

For 2012, covered securities include:

• Most stocks purchased in 2011 or later
• Mutual fund shares and other regulated investment company stock purchased in 2012 or later
• Securities acquired through stock splits, dividends, or mergers if the original security was covered

Noncovered securities include:

• Stocks purchased before 2011
• Mutual fund shares purchased before 2012
• Bonds and options (these would become covered in later years)
• Stock transferred to dividend reinvestment plans in 2011

New Required Information

In 2012, Form 1099-B added several new boxes:

• Box 1d: Stock symbol
• Box 1e: Quantity of shares sold
• Box 6b: Checkbox indicating whether cost basis was reported to the IRS
• Boxes 13-15: State tax withholding information

Wash Sale Reporting

For covered securities, brokers must now calculate and report "wash sales" in Box 5. A wash sale occurs when you sell a security at a loss and buy substantially identical securities within 30 days before or after the sale. The loss is disallowed for tax purposes, and your broker adjusts the cost basis of the replacement shares accordingly.

S Corporation Reporting

Starting in 2012, if an S corporation acquired covered securities after 2011 and later sold them, the broker must report these transactions on Form 1099-B.

Average Basis Method

For mutual funds and dividend reinvestment plans, brokers can use an average basis method if you don't specify which shares to sell. This calculates the average cost of all your shares rather than tracking each purchase separately.

Step-by-Step (High Level)

Step 1: Receive Your Form 1099-B

By February 15, 2013, you should receive a Form 1099-B from each broker or barter exchange where you had transactions in 2012. Review each form carefully to ensure the information matches your records.

Step 2: Check for Covered vs. Noncovered Securities

Look at Box 6a. If it's checked, the security is "noncovered," meaning the broker didn't report cost basis to the IRS. You'll need to provide this information yourself using your own records. If Box 6a is unchecked, check Box 6b—if checked, the broker reported the cost basis to the IRS in Box 3.

Step 3: Organize by Short-Term vs. Long-Term

Box 1c indicates whether each transaction resulted in short-term or long-term gain or loss. Short-term applies to securities held one year or less; long-term applies to securities held longer than one year. These are taxed at different rates, so this distinction is important.

Step 4: Transfer Information to Form 8949

You'll report each transaction from Form 1099-B on Form 8949, which has separate sections for covered securities with basis reported, noncovered securities, and transactions not reported on 1099-B. Form 8949 acts as a worksheet showing all the details.

Step 5: Complete Schedule D

After completing Form 8949, transfer the totals to Schedule D (Form 1040), which calculates your net capital gain or loss. This net figure flows to your main tax return (Form 1040) and affects your total tax liability.

Step 6: Reconcile and File

Before filing, double-check that the amounts on your Schedule D match what's reported on all your Forms 1099-B. The IRS computer systems will flag mismatches, which could trigger an audit or automated adjustment.

Common Mistakes and How to Avoid Them

Mistake #1: Not Reporting All Transactions

Some taxpayers mistakenly think they don't need to report sales that resulted in a loss, or small transactions. Solution: Report every transaction shown on Form 1099-B, even losses. Losses can offset gains and reduce your tax bill.

Mistake #2: Using the Wrong Cost Basis

For noncovered securities (Box 6a checked), you must calculate your own cost basis. Many taxpayers forget to include reinvested dividends, which increase basis, or forget about stock splits. Solution: Keep detailed records of all purchases, including reinvested dividends. If you don't have records, contact your broker or review old statements. Missing documentation? The IRS may assume your cost basis is zero, maximizing your taxable gain.

Mistake #3: Ignoring Wash Sale Adjustments

For covered securities, Box 5 shows wash sale losses that are disallowed. However, for noncovered securities, you must calculate wash sales yourself. Solution: Track all purchases and sales carefully, especially if you trade frequently. If you sell at a loss and repurchase the same security within 30 days (before or after), the loss is disallowed and must be added to the basis of the new shares.

Mistake #4: Mismatching Form 1099-B with Schedule D

The IRS matches the total proceeds you report on Schedule D against the total from all Forms 1099-B. Even a small discrepancy can trigger a computer-generated notice. Solution: Make sure the totals from your Form 8949 exactly match your Forms 1099-B. If you need to make an adjustment (like correcting basis for a noncovered security), clearly document it.

Mistake #5: Forgetting About Bartering Income

Box 7 reports income from bartering—exchanging goods or services through a barter exchange. This is fully taxable income. Solution: Include bartering income on your Schedule C if you're self-employed, or as "Other Income" on Form 1040 if it's not business-related.

Mistake #6: Confusing "Covered" Status

Many taxpayers don't understand that just because they bought a stock in 2012 doesn't mean it's covered—the type of security and when it was acquired matter. Solution: Always check Box 6a and Box 6b. When in doubt, review the detailed rules or consult a tax professional.

What Happens After You File

IRS Matching Process

The IRS receives copies of all Forms 1099-B and uses computers to match them against your tax return. This usually happens 12-18 months after you file. If the IRS finds a discrepancy, you'll receive a CP2000 notice proposing additional tax, interest, and possibly penalties.

If Everything Matches

If your return matches the 1099-B information, you likely won't hear anything from the IRS about these transactions (though you could still be selected for audit for other reasons).

If You Receive a CP2000 Notice

This is not a bill—it's a proposal. You have the right to respond within 30 days. If the IRS is correct and you underreported income, you'll owe additional tax plus interest. If you believe the IRS is wrong, provide documentation (like proof of your correct cost basis) explaining the discrepancy. Many CP2000 notices result from noncovered securities where the IRS doesn't have your cost basis information.

Refund or Payment

Based on your capital gains or losses, you may owe additional tax or receive a refund. Capital losses can offset capital gains dollar-for-dollar. If your losses exceed your gains, you can deduct up to $3,000 per year against ordinary income, with remaining losses carrying forward to future years.

Audit Potential

Investment transactions are a common audit trigger, especially if you report large losses or have complex transactions. Keep all supporting documentation (trade confirmations, statements, cost basis records) for at least three years, and longer if you're carrying losses forward.

FAQs

Q1: I received a 1099-B but I didn't sell anything—I just had money moved between accounts. What should I do?

A: Sometimes brokers issue a 1099-B for transfers that aren't actually taxable sales (like transferring stock from one broker to another). If Box 6a is checked and shows it as a noncovered security, you may need to report the "sale" but show that your basis equals the proceeds, resulting in zero gain. Review the transaction carefully or contact your broker to request a corrected form if it was issued in error.

Q2: My Form 1099-B shows a much larger gain than I think I really have. Why?

A: For noncovered securities, brokers only report the sale proceeds, not what you paid. The IRS doesn't know your basis, so on the 1099-B it may appear you have a large gain. You'll correct this when you complete Form 8949 by entering your actual cost basis. Make sure you have documentation supporting your basis.

Q3: What if I sold stock that I inherited? How do I determine the cost basis?

A: For inherited stock, your basis is generally the fair market value on the date of the decedent's death (or alternate valuation date if elected). This "step-up" in basis often eliminates or reduces gain. The stock is considered held long-term regardless of how long you actually held it. If the stock was a covered security and properly transferred with a transfer statement, your broker may have the correct basis. Otherwise, you'll need to research the stock's value on the date of death.

Q4: I day-traded stocks and have hundreds of transactions. Do I really need to report every single one?

A: Yes, but there's relief. You must report every transaction, but the IRS allows you to attach a separate statement with all transactions listed if they don't fit on Form 8949. Many tax software programs handle this automatically. Consider providing a summary on Form 8949 with a detailed attachment showing all trades. Keep detailed records because the IRS may ask for specifics.

Q5: What's the difference between Box 2a showing "Gross proceeds" vs. "Gross proceeds less commissions"?

A: Brokers can choose to report either the gross amount you received or the net amount after commissions and fees. A checkbox in Box 2a indicates which method was used. If gross proceeds are reported, you deduct commissions when calculating your gain or loss on Form 8949. If net proceeds are reported, your commissions are already accounted for in Box 2a. This doesn't change your ultimate tax—it's just different reporting methods.

Q6: I have a loss from a wash sale in Box 5. Does this mean I can't deduct my loss?

A: Correct—wash sale losses in Box 5 are disallowed for the current year. However, the disallowed loss isn't lost forever. It's added to the cost basis of the replacement shares you purchased (the ones that triggered the wash sale). This means you'll get the benefit of the loss when you eventually sell those replacement shares, assuming you don't trigger another wash sale.

Q7: My broker closed and I never received a Form 1099-B. What should I do?

A: You're still required to report all sales. Contact the firm's successor (many broker closures involve acquisitions) or check your final account statements for transaction details. In a pinch, use trade confirmations or monthly statements to reconstruct your transactions. If you absolutely cannot determine the cost basis for noncovered securities, you may need to report zero basis (which maximizes your tax) or explain the situation to the IRS with whatever documentation you have.

Sources

• IRS Form 1099-B 2012
• IRS Instructions for Form 1099-B 2012
• About Form 1099-B | IRS.gov

This guide is for informational purposes only and does not constitute tax advice. For specific situations, consult a qualified tax professional or the IRS directly.