To report non-covered securities on your tax return, list each sale on Form 8949 using Box B for short-term holdings or Box E for long-term holdings, supply the cost basis your broker didn’t report in column (e), and carry the totals to Schedule D. A security is “non-covered” when your broker wasn’t required to track and report your basis to the IRS, so the number that determines your taxable gain has to come from you. Leave column (e) blank and the IRS treats your entire sale price as gain.
Confirm the Security Is Actually Non-Covered
Whether a holding is non-covered depends on what it is and when you bought it:
- Stocks and most ETFs acquired before January 1, 2011
- Mutual fund shares and dividend reinvestment plan shares acquired before January 1, 2012
- Bonds, options, and simpler debt instruments acquired before January 1, 2014
- Complex bonds (convertible, inflation-indexed, foreign-currency, and similar) acquired before January 1, 2016
Anything purchased after those cutoffs is “covered,” and your broker already reports the basis. Only the pre-cutoff purchases shift the reporting job to you.1Internal Revenue Service. Publication 551, Basis of Assets
Check Box 12 on your 1099-B. If it’s unchecked, basis wasn’t reported to the IRS, which puts you in non-covered territory regardless of what date the form shows. Some brokers voluntarily print a basis figure for non-covered lots as a courtesy, but that figure isn’t transmitted to the IRS and carries no penalty for the broker if it’s wrong. Verify it yourself.2Internal Revenue Service. Instructions for Form 1099-B (2026)
Find or Reconstruct Your Cost Basis
Your basis is what you paid, plus any commissions or transfer fees that were part of the purchase. Every documented dollar of basis is a dollar the IRS won’t tax.
Start With the Original Records
The strongest evidence is the trade confirmation from the day you bought the shares. Monthly brokerage statements and year-end summaries from the purchase year also work. If you reinvested dividends, each reinvestment created a separate purchase lot with its own basis; those dividends were already taxed as income when paid, so they add to your basis in the new shares. For stock splits, spread your original purchase price proportionally across the new share count.
If the Records Are Gone
Call the brokerage first. Many firms retain historical records for non-covered lots even though they weren’t obligated to, and some can produce a basis estimate. You can also request past return transcripts from the IRS using Form 4506-T or the Get Transcript tool at IRS.gov, which may show dividend income or earlier sales that help you rebuild a purchase timeline.3Internal Revenue Service. Reconstructing Records After a Natural Disaster or Casualty Loss
Old credit card and bank statements can also establish what you paid. When records don’t exist at all, courts have allowed reasonable estimates supported by indirect evidence, such as historical stock price data pinned to a known purchase date. The estimate needs a factual foundation, not a guess.
Mutual Funds: Average Cost Method
For mutual fund shares bought at different times and prices, you can elect the average cost method: add the total cost of all shares in the fund, divide by the total number of shares, and multiply by the number sold.4Internal Revenue Service. Mutual Funds (Costs, Distributions, etc.) 1 For non-covered shares, you make the election simply by using the average method on your return the first year it applies. Once elected, it applies to all identical shares in that account.5Internal Revenue Service. Publication 550, Investment Income and Expenses
Pick the Right Box on Form 8949
Form 8949 is where you list each sale and supply the basis the IRS doesn’t have. Part I holds short-term sales (held one year or less), Part II holds long-term sales (held more than one year). Most non-covered holdings from before 2011 will be long-term by now, but check the dates in case a wash sale replacement or similar event reset the holding period.
The checkbox at the top of each part tells the IRS where your numbers came from, and this is the step people get wrong:
- Box B (short-term) or Box E (long-term): You received a 1099-B, but basis wasn’t reported to the IRS. This is the normal situation for non-covered securities.
- Box C (short-term) or Box F (long-term): You didn’t receive a 1099-B at all. Uncommon, and usually only when the broker is out of business or no intermediary was involved.
Nearly everyone selling non-covered securities checks Box B or Box E.6Internal Revenue Service. Instructions for Form 8949 (2025) Picking the wrong box doesn’t change the tax you owe, but it will flag your return in the IRS matching system: Box B/E tells the system to look for a 1099-B, and Box C/F tells it not to.
Fill In Each Column
One row per sale:
- Column (a): brief description, such as “100 sh XYZ Corp”
- Column (b): acquisition date (MM/DD/YYYY). Enter “VARIOUS” if the row combines lots bought on different dates.
- Column (c): sale date
- Column (d): sale proceeds from Box 1d of your 1099-B
- Column (e): your cost basis, including commissions and fees from both the purchase and the sale
- Column (f): adjustment code, if any; otherwise blank
- Column (g): adjustment amount in dollars; blank if column (f) is blank
- Column (h): gain or loss — column (d) minus column (e), then modified by column (g)
Column (e) is the whole point of the exercise. Overstate it and you understate the tax you owe, which creates audit exposure. Understate it and you overpay voluntarily. Because the IRS has no basis figure to check yours against, the documentation behind your number is your protection.
Adjustments for Special Situations
Some transactions need a code in column (f) and a dollar figure in column (g) to arrive at the correct gain or loss.
Wash Sales
If you sold at a loss and bought the same or substantially identical security within 30 days before or after the sale, the loss is disallowed. Enter code W in column (f) and the disallowed loss as a positive number in column (g), which zeros out the loss for the current year.7Internal Revenue Service. Case Study 1: Wash Sales The disallowed amount is added to the basis of the replacement shares, so you recover it when you eventually sell those.
Inherited Securities
Inherited shares generally get a stepped-up basis equal to fair market value on the date of the original owner’s death, erasing gains that accumulated during their lifetime. On Form 8949, write “INHERITED” in column (b) instead of a purchase date. The holding period is automatically long-term regardless of how long you held the shares, so report the sale in Part II.6Internal Revenue Service. Instructions for Form 8949 (2025)
If the 1099-B shows a basis different from the stepped-up value, use code B in column (f) and enter the correction in column (g).
Gifted Securities
Shares received as a gift generally carry over the donor’s original basis. If you sell at a gain, use the donor’s basis. If the value on the gift date was lower than the donor’s basis and you sell at a loss, use the lower gift-date value instead. This dual rule keeps built-in losses from being gifted as deductions.
If the 1099-B shows the wrong basis for gifted shares, use code B in column (f) to correct it. If no 1099-B was issued and you’re reporting under Box C or F, columns (f) and (g) can stay blank as long as column (e) shows the correct basis.
Worthless Securities
A security that becomes completely worthless is treated as sold on the last day of that tax year for zero proceeds. Report $0 in column (d) and your full basis in column (e). Measure the holding period from your acquisition date through December 31 of the year the security became worthless.8Internal Revenue Service. Losses (Homes, Stocks, Other Property) 1
Sales to Related Parties
Losses on sales to family members or entities you control are disallowed entirely. Report the sale, use code L in column (f), and enter the full disallowed loss as a positive number in column (g) to zero it out.9Office of the Law Revision Counsel. 26 USC 267, Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers
Carry the Totals to Schedule D
Each box on Form 8949 has its own line on Schedule D:10Internal Revenue Service. Form 8949 (2025), Sales and Other Dispositions of Capital Assets
- Box B short-term totals go to Schedule D, Line 2
- Box C short-term totals go to Schedule D, Line 3
- Box E long-term totals go to Schedule D, Line 9
- Box F long-term totals go to Schedule D, Line 10
Schedule D combines everything (covered securities, non-covered securities, and any other capital sales) into a single net figure that flows to your Form 1040.11Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets If losses exceed gains, the deduction against other income is capped at $3,000 a year ($1,500 if married filing separately), with the remainder carrying forward indefinitely.12Office of the Law Revision Counsel. 26 USC 1211, Limitation on Capital Losses
What It Costs to Get the Basis Wrong
A basis figure that’s too high, whether from carelessness or from guessing after records went missing, can trigger the accuracy-related penalty of 20% on the resulting underpayment.13Internal Revenue Service. Accuracy-Related Penalty Interest compounds daily on top of that. For 2026, the individual underpayment rate is 7% in the first quarter and 6% in the second.14Internal Revenue Service. Quarterly Interest Rates
The opposite mistake is worse. Leave column (e) blank and the IRS treats your basis as zero, taxing your entire sale price as gain. A reasonable, documented estimate is always better than an empty field.
Keep the Records
For non-covered securities you still own, hold onto every purchase record (trade confirmations, reinvestment statements, split and corporate action notices) until at least three years after you file the return reporting the sale. The IRS’s own guidance is to keep property records until the statute of limitations expires for the year of disposition.15Internal Revenue Service. How Long Should I Keep Records
Practically, that can mean holding decades-old records if you still own the shares. The IRS has six years to audit if you underreport income by more than 25%, so an extra buffer beyond three years is prudent. Given that non-covered securities involve older transactions where broker records are already thin, keeping everything indefinitely is the safest approach.