Understanding Your 1099-B: What Your Broker Actually Reports (and Doesn't)

Brokers weren't always required to report cost basis to the IRS. Congress phased that requirement in gradually: stocks acquired starting in 2011, mutual fund and dividend reinvestment plan shares starting in 2012, and most other specified securities, bonds, options, starting in 2014. A security acquired after its applicable date is "covered," and your broker must report its basis to the IRS, not just to you. A security acquired before that date is "noncovered," and the broker reports the sale proceeds without any obligation to report basis at all.

This matters enormously for active traders in a few specific situations. Transferring an account between brokers frequently breaks basis reporting, since the receiving broker doesn't always get complete transfer statements from the sending one, especially for older accounts or less common security types. Inherited or gifted positions often arrive with murky basis history. And any position you've held long enough to straddle the 2011 to 2014 phase-in dates might genuinely be noncovered no matter how careful your recordkeeping has been.

When you see Box 5 checked, that's not the broker being lazy. It's the broker following the exact reporting rule that applies to that specific security, and it's your signal to go find the real basis yourself rather than trust whatever number, if any, shows up on the form.

Here's the mechanism behind the opening story, and it's worth understanding precisely because it's completely avoidable. The IRS runs an automated system, the Automated Underreporter program, that matches every 1099 filed under your Social Security number against what you actually reported on your return. When your broker reports $340,000 in sale proceeds and your Schedule D shows nothing offsetting it, either because you didn't report the sale at all or because your basis genuinely wasn't available, the system doesn't know you actually paid $335,000 for that position eight years ago. It sees $340,000 of unexplained proceeds and proposes tax on the full amount as if your cost basis were zero.

A CP2000 notice generated this way isn't a bill and isn't an audit. It's a proposed adjustment, and it's very often wrong in exactly this way, dramatically overstated because the matching system has no visibility into a basis that exists but wasn't reported. The fix is straightforward once you understand what happened: respond within the notice's deadline, generally 30 days, with documentation of your actual cost basis, purchase confirmations, old account statements, a transfer summary from your prior broker. The IRS routinely adjusts these notices down substantially once real basis is supplied. The problem is entirely preventable if you catch the missing basis before you file rather than after a notice arrives.

Your 1099-B doesn't get typed directly into your return. It feeds Form 8949, where every sale gets sorted into one of several boxes depending on whether it's short-term or long-term and whether basis was reported to the IRS. Covered securities with basis reported use one set of codes; noncovered securities where you're supplying your own basis use another. Getting this categorization right matters, since mixing a noncovered sale into the wrong Form 8949 section can make it look like you're reporting a number that contradicts what the IRS already has on file, inviting exactly the kind of mismatch notice described above. Form 8949 totals then flow to Schedule D, where your short-term and long-term gains and losses net against each other before any tax rate applies.

Box 1g shows wash sale losses your broker disallowed, but this number is frequently incomplete for an active trader, and it's worth understanding exactly why before you assume your 1099-B already captured every disallowed loss you had. Brokers calculate wash sales using an exact-symbol match within a single account. The actual rule, covered in full in the wash sale rule guide, reaches substantially identical positions, not just identical tickers, and applies across every account you or your spouse own, including IRAs, not just the one account the broker can see.

That gap means a trader working the same underlying position across a stock and its options, or across two different brokers, can have real wash sale exposure that never shows up anywhere on any single 1099-B. The form is a starting point for your wash sale accounting, not the finished product.

If you trade cryptocurrency through a broker or exchange, sales are increasingly reported on a separate form, Form 1099-DA, rather than the traditional 1099-B. Mandatory basis reporting for covered digital asset sales phases in starting with 2026 transactions, following a similar covered versus noncovered structure to what's described above, and a lot of crypto sales still arrive with basis marked "unknown" because of how routinely people move assets between exchanges and wallets. That gap creates the exact same CP2000 risk described earlier, at potentially larger scale, since crypto transfers between platforms are even more common than security transfers between brokers. The complete picture of how crypto trading gets taxed, including this reporting shift, is covered in the crypto day trading taxes guide.

Pull your 1099-B, or your consolidated 1099 if your broker bundles it with dividend and interest reporting, and actually look at Box 5 on every line before your tax software auto-imports everything. For any noncovered sale, track down the real basis from old confirmations or statements rather than leaving it blank or accepting a zero. Cross-check Box 1g against your own trade records if you're an active trader working the same names repeatedly, since the broker's wash sale figure is frequently a floor, not a ceiling. And if you transferred accounts during the year, specifically confirm the receiving broker actually got your original cost basis, since this is the single most common way a clean, fully-basis-reported position turns into a noncovered, blank-basis nightmare a year or two later.