Form 1099-B: Proceeds From Broker and Barter Exchange Transactions (2016)
What the Form Is For
Form 1099-B is an information return that reports the sale of stocks, bonds, mutual funds, and other securities, as well as transactions made through barter exchanges. If you sold investments in 2016 through a broker, received cash or property from a corporate restructuring, or exchanged goods or services through a barter exchange, you likely received this form.
Who receives it: Individual investors, traders, and anyone who participated in barter exchanges receive Copy B of this form. The same information goes to the IRS as Copy A.
Who sends it: Brokers (including online trading platforms like E*TRADE or Charles Schwab), barter exchanges, and certain corporations that underwent control changes must file Form 1099-B. A broker is essentially any person or company that facilitates securities sales for others in the ordinary course of business.
What it reports: The form shows your gross proceeds from sales (Box 1d), the cost basis of securities sold (Box 1e for covered securities), acquisition and sale dates, and whether gains or losses are short-term or long-term. For 2016, the form also began reporting accrued market discount (Box 1f) and wash sale losses disallowed (Box 1g). These details help you accurately report capital gains and losses on your tax return.
The critical distinction in 2016 involved "covered securities" versus "noncovered securities." Covered securities are those for which brokers must report cost basis to the IRS—generally stocks acquired after 2010, mutual fund shares after 2011, and certain debt instruments and options after 2013. For noncovered securities, brokers may check Box 5 and leave certain fields blank, placing the reporting burden on you.
When You’d Use Form 1099-B (Including Late and Amended Returns)
Primary Use
You use Form 1099-B information when preparing your annual tax return, specifically when completing Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses). Every transaction reported on Form 1099-B must be accounted for on your return.
Regular Deadline
Brokers must send you Form 1099-B by February 15, 2017 for transactions that occurred during 2016. This is earlier than the typical January 31 deadline for most other 1099 forms, giving you time to prepare your tax return before the April filing deadline.
Late or Corrected Forms
If your broker discovers an error or receives updated information (such as from a transfer statement or issuer return on Form 8937), they must send you a corrected Form 1099-B. You may receive corrected forms weeks or even months after the original. If you've already filed your tax return and then receive a corrected 1099-B showing different amounts, you must file an amended return using Form 1040-X.
What Triggers Corrections
Common reasons include incorrect cost basis calculations, missing wash sale adjustments, corporate actions affecting basis (like stock splits or mergers), or transfer statement information received after the initial filing.
Missing or Erroneous Forms
If you never received a Form 1099-B but believe you should have, contact your broker immediately. You're still required to report all sales even without the form. Conversely, if you receive a Form 1099-B for a transaction that didn't occur, contact the broker to request a corrected form showing void or zero amounts.
Key Rules or Details for 2016
Covered vs. Noncovered Securities
This distinction fundamentally shapes your responsibilities. For covered securities, brokers must report cost basis, acquisition date, and holding period. For noncovered securities (Box 5 checked), brokers report only proceeds, leaving you to track and report basis.
Cost Basis Reporting
Box 1e shows the adjusted cost basis for covered securities. This includes adjustments for things like corporate actions, return of capital distributions, and, for securities acquired through non-compensatory options after January 1, 2014, the option premium. However, if you exercised compensatory stock options (like from your employer), the basis shown does NOT include amounts reported on your Form W-2—you must add those yourself.
Wash Sale Rules
A wash sale occurs when you sell a security at a loss and purchase substantially identical securities within 30 days before or after the sale. Box 1g reports disallowed losses from wash sales. Brokers must track wash sales only within identical accounts. If you have multiple accounts or accounts at different brokers, you're responsible for identifying additional wash sales across accounts.
Holding Period Boxes
Box 2 indicates whether your gain or loss is short-term (held one year or less) or long-term (held more than one year). Tax rates differ significantly: short-term gains are taxed as ordinary income (up to 39.6% in 2016), while long-term gains enjoy preferential rates (0%, 15%, or 20% depending on income).
The "Ordinary" Checkbox
If the "Ordinary" box in Box 2 is checked, special rules may apply. For example, certain contingent payment debt instruments generate ordinary income rather than capital gains. Review Publication 550 for specifics.
Market Discount
Box 1f shows accrued market discount on debt instruments. This amount may be taxable as ordinary income rather than capital gain.
Form 8949 Codes
The "Applicable check box on Form 8949" tells you where to report the transaction—boxes A, B, D, E, or X on Form 8949. Code A and D indicate basis was reported to the IRS; codes B and E indicate it wasn't; code X means the broker couldn't determine the holding period.
Regulated Futures and Section 1256 Options
These specialized contracts (Boxes 8-11) are reported differently and aggregate on Form 6781. They receive special 60/40 tax treatment (60% taxed at long-term rates, 40% at short-term rates regardless of actual holding period).
Step-by-Step (High Level)
Step 1: Receive and Review
When your Form 1099-B arrives by mid-February, carefully review all information. Check that your name, Social Security number, and transaction details match your records. If anything seems incorrect, contact your broker before filing your return.
Step 2: Organize by Transaction Type
Separate your 1099-B forms based on the code shown. You'll report short-term transactions separately from long-term transactions, and covered securities separately from noncovered securities.
Step 3: Complete Form 8949
Transfer information from Form 1099-B to Form 8949. You'll need separate Form 8949 sections for each category:
- Part I, Box A: Short-term transactions with basis reported to IRS (Code A)
- Part I, Box B: Short-term transactions with basis NOT reported to IRS (Code B)
- Part II, Box D: Long-term transactions with basis reported to IRS (Code D)
- Part II, Box E: Long-term transactions with basis NOT reported to IRS (Code E)
For each transaction, list the description (Box 1a), dates acquired and sold (Boxes 1b and 1c), proceeds (Box 1d), and cost basis (Box 1e). Add any necessary adjustments in column (g)—for example, adding W-2 compensation for stock options.
Step 4: Make Adjustments
Review whether you need to make adjustments. Common scenarios include:
- Adding compensation income from stock option exercises
- Identifying additional wash sales across different accounts
- Correcting basis for inherited securities or gifts
- Accounting for corporate actions not reflected on the form
Step 5: Transfer to Schedule D
Total each Form 8949 section and carry the amounts to the appropriate lines on Schedule D. Schedule D combines all capital gains and losses to calculate your net capital gain or loss.
Step 6: Calculate Tax
If you have a net capital gain, you may be eligible for preferential tax rates. Use the Qualified Dividends and Capital Gain Tax Worksheet or Schedule D Tax Worksheet as directed in the Form 1040 instructions.
Step 7: Keep Records
Retain all Forms 1099-B, along with purchase confirmations and records of adjustments, for at least three years after filing (or longer if you have carryover losses).
Common Mistakes and How to Avoid Them
Mistake 1: Not Reporting All Transactions
Even if you didn't receive a Form 1099-B, you must report all securities sales. The IRS receives copies of all 1099-B forms and matches them against tax returns. Missing transactions trigger automated notices.
Solution: Keep detailed records throughout the year. Reconcile your year-end broker statements against the 1099-B forms you receive.
Mistake 2: Using Incorrect Cost Basis
For noncovered securities (Box 5 checked), many taxpayers simply use the proceeds as basis or guess, leading to overstated or understated gains.
Solution: Maintain thorough purchase records. If records are truly unavailable, you may have to use zero basis, resulting in the entire proceeds being taxable gain.
Mistake 3: Ignoring Wash Sale Adjustments
Brokers report wash sales only within the same account. If you buy and sell similar securities across multiple accounts or brokers, you must identify those wash sales yourself.
Solution: Review all investment accounts for purchases of substantially identical securities within the 61-day wash sale window (30 days before and after each sale).
Mistake 4: Forgetting to Add W-2 Compensation
When you exercise stock options received from your employer, the compensation element appears on your W-2. If the 1099-B cost basis doesn't include this amount, you'll pay tax twice on the same income.
Solution: For compensatory options, add your W-2 compensation to the basis shown in Box 1e before calculating gain or loss.
Mistake 5: Mismatching Form 8949 Boxes
Each transaction code (A, B, D, E, X) goes in a specific box on Form 8949. Mixing them up causes calculation errors and may trigger IRS correspondence.
Solution: Follow the code shown on Form 1099-B precisely. Use separate Form 8949 pages for each category if needed.
Mistake 6: Overlooking Accrued Market Discount
Box 1f shows market discount that may need to be reported as ordinary income. Simply subtracting cost basis from proceeds doesn't capture this nuance.
Solution: If Box 1f contains an amount, consult Publication 550 or a tax professional to determine proper treatment.
Mistake 7: Filing Before Receiving Corrected Forms
Brokers sometimes issue corrected 1099-B forms in March or even later, after many taxpayers have already filed.
Solution: If you know your broker typically issues corrections (especially if corporate actions are involved), wait until late March to file, or be prepared to amend if necessary.
What Happens After You File
IRS Matching
The IRS receives Copy A of every Form 1099-B and uses sophisticated computers to match reported proceeds against what you report on your return. This usually happens 12-18 months after you file.
CP2000 Notices
If the IRS identifies a mismatch—such as proceeds reported to them but not on your return, or different amounts—you'll receive a CP2000 notice proposing additional tax, penalties, and interest. You have the right to respond by providing documentation showing either the IRS is correct (and you owe) or that you properly reported the transaction with legitimate adjustments.
Corrected Returns
If you receive a corrected Form 1099-B after filing, you generally should file Form 1040-X (Amended U.S. Individual Income Tax Return) within three years of the original filing date. Include a complete corrected Form 8949 and Schedule D with your explanation.
Carryover Losses
If your capital losses exceed your capital gains plus $3,000 ($1,500 if married filing separately), you carry the excess forward to future years. Track these carefully, as you'll claim them on Schedule D in subsequent years until fully utilized.
State Filing
Most states that impose income tax require you to report the same capital gains and losses. Your state may have different rules or rates, so check your state's instructions.
Audit Considerations
Investment transactions are common audit targets, especially when cost basis isn't reported or adjustments are made. Maintain comprehensive documentation—trade confirmations, statements, transfer records, and calculation worksheets—to substantiate everything on your return.
Record Retention
The IRS generally has three years to audit a return, but this extends to six years if you substantially understate income. Keep all Forms 1099-B and supporting documentation for at least seven years to be safe.
FAQs
Q1: I sold stock but didn't receive a Form 1099-B. Do I still need to report it?
Yes, absolutely. You must report all investment sales regardless of whether you received a Form 1099-B. Common reasons for not receiving the form include selling to a private party (not through a broker) or falling under an exception. Report the sale on Form 8949 using your purchase and sale records to determine the basis and proceeds.
Q2: My Form 1099-B shows a different cost basis than I calculated. What should I do?
First, verify your calculation. Review your purchase confirmation, any corporate actions (splits, mergers, spin-offs), return of capital distributions, and other basis adjustments. If you believe your figure is correct and can document it, you may make an adjustment on Form 8949 in column (g) with code "B" (for basis adjustment). Attach an explanation if the adjustment is substantial. If you're unsure, consult a tax professional before filing.
Q3: What if I have both covered and noncovered sales of the same stock in one transaction?
Your broker should issue separate Forms 1099-B—one for covered securities (with Box 3 checked, showing basis) and another for noncovered securities (with Box 5 checked). Report them on Form 8949 in the appropriate sections based on whether basis was reported to the IRS. The sale date and proceeds should be proportionally allocated.
Q4: Can I use the average cost method for calculating stock basis?
The average cost method is allowed only for mutual fund shares and dividend reinvestment plan shares, not for individual stocks. Once you elect the average cost method for a fund, you must continue using it for all shares in that account unless you receive IRS permission to change. For individual stocks, you must use specific identification (telling your broker which shares to sell) or first-in, first-out (FIFO) if you don't specify.
Q5: I sold inherited stock. How do I report this?
Inherited securities generally receive a "step-up" in basis to the fair market value on the deceased's date of death (or alternate valuation date). These sales are always long-term regardless of how long you held them. If Box 1e shows an incorrect basis, make an adjustment on Form 8949. Your Form 1099-B may or may not reflect the proper stepped-up basis, so verify independently using estate documents or date-of-death valuations.
Q6: What happens if I can't find my purchase records to prove my cost basis?
This is challenging. Start by contacting your broker to request historical statements—many brokers retain records for seven to ten years. Check old tax returns for any records of purchases. If you truly cannot establish basis, IRS rules technically require you to use a basis of zero, meaning the entire proceeds are taxable gain. Given this harsh result, it's worth considerable effort to reconstruct records—perhaps through dividend histories, transfer records, or even contacting the company's transfer agent.
Q7: Do I need to report cryptocurrency transactions on Form 1099-B for 2016?
For 2016, Form 1099-B reporting of cryptocurrency transactions was not yet common, as most brokers didn't treat crypto as a security requiring Form 1099-B. However, you must still report all cryptocurrency sales on Form 8949 treating them as property transactions. The IRS has increasingly focused on crypto compliance, so maintaining detailed records is essential. In later years (2020+), some platforms began issuing Forms 1099-B for crypto transactions.
Additional Resources
For complete official guidance on Form 1099-B for 2016, consult these authoritative IRS sources:
