r2i forum

According to a new regulation, US brokers are expected to report the cost basis information to IRS for all investments. I have following questions on the same:

1) Do we have to report ownership of stock/mutual fund to IRS even if we have NOT sold those investments? In other words, do we have to report UNREALIZED capital gains to IRS?

2) I am assuming that we have to pay taxes ONLY on realized capital gains. Has that changed? Do we have to pay tax on UNrealized gains? I hope not.

Appreciate any clarification.

sohu;418059According to a new regulation, US brokers are expected to report the cost basis information to IRS for all investments. I have following questions on the same:

1) Do we have to report ownership of stock/mutual fund to IRS even if we have NOT sold those investments? In other words, do we have to report UNREALIZED capital gains to IRS?

2) I am assuming that we have to pay taxes ONLY on realized capital gains. Has that changed? Do we have to pay tax on UNrealized gains? I hope not.

Appreciate any clarification.

No, you have to report and pay tax only on realized gains. [ I exclude special cases like PFICs since those are normally held only in foreign brokerage accounts.]

Sohu, Member Greyfri has correctly answered your query.

Unrealized gains are not taxed. What used to happen in the past is that brokerage houses were required to report the sale price and information of sale (1099-B) as this was the trigger for taxation, but the taxpayer could easily cheat by putting an inflated cost basis which the IRS would never know what it is unless they audit in detail.

The new process makes it easier to find cost basis during an audit as cost basis information would be in the 1099-B and would minimize the desire of cheating as the risk of getting caught during an audit would be greater.

Thank you greyfri & Desi for the clarification. Appreciate it.