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Understanding Cost Basis
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FAQs

 

FAQS
Regular Taxable Accounts
  • When I receive income dividends or capital gain distributions in my regular account, are those amounts taxable?

    Yes. Dividends and capital gain distributions are taxable to you and must be reported on your tax return. By early-February, you will receive Form 1099-DIV, which reports the total taxable distributions you received during the year. This information is reported to the IRS.

  • If I reinvest my dividends or capital gains, are they still taxable?

    Yes. The value of reinvested dividends and distributions will be included on Form 1099-DIV and must be reported on your tax return. The shares you receive on the reinvestment are treated as newly purchased shares.

  • Why does a Fund pay capital gain distributions?

    Capital gain distributions in a mutual fund are distributions of the net capital gains derived from sales of stocks and bonds within the Fund. As a result, they can occur in a Fund even in a period when the Fund’s total return is low or negative. To comply with IRS requirements, the Dodge & Cox Funds normally distribute net capital gains annually. (When a Fund sells an individual security, the Fund tracks the difference between the selling price and the original purchase price of that security to determine the gain or loss produced by the sale. At the end of each tax year, the Fund accumulates the gains and losses for all securities sold by the Fund during the year. If the net amount is positive, the Fund will make a capital gain distribution to shareholders.)

  • If I sell shares in my regular account, is the transaction taxable?

    Yes. If you sell (redeem or exchange) shares in your Fund account, the gain or loss on that sale must be reported to the IRS on your tax return. By early-February, you will receive Form 1099-B, which reports the proceeds you received from your sale. This information is reported to the IRS.

  • If I exchange my investment from one Dodge & Cox Fund to another, is the transaction still taxable?

    Yes. For tax purposes, an exchange is considered a sale of one Fund and the purchase of another. The gain or loss on the shares you sell in the exchange transaction must be reported on your tax return. By early-February, you will receive Form 1099-B, which reports the proceeds you received from your sale.

  • If I sell shares in my account, how do I calculate the gain or loss?

    Your gain or loss is determined by comparing the amount you realize from the sale (sales proceeds) against the cost basis of the shares sold.

  • How do I determine the basis of the shares I have sold?

    Generally, cost basis is the original amount you paid for shares in your Fund account, including the value of reinvested dividends and capital gains. The IRS requires mutual fund companies to report the cost basis of Fund shares that are acquired after January 1, 2012 (covered shares). For covered shares, you may elect a cost basis method for your account from several available methods. Dodge & Cox Funds will report the cost basis information to you and to the IRS on Form 1099-B in January following the year in which a sale of covered shares occurs. For more information on available cost basis methods, please see Dodge & Cox Funds’ cost basis overview page.

    For shares acquired prior to January 1, 2012 (non-covered shares), only Average Cost basis reporting can be provided. For most regular taxable Fund accounts opened after November 1987, Dodge & Cox Funds have been tracking and reporting cost basis information using the Average Cost basis method. The information is reported to you on Form 1099-B. The information is not reported to the IRS. If you choose to use a method other than the Average Cost basis method for non-covered Fund shares, you are responsible for keeping those cost records.

  • What is the difference between short-term and long-term capital gains?

    Short-term gains are gains on securities held one year or less. They are taxed at the same rates as ordinary income. Short-term capital gain distributions from the Fund are reported as ordinary income on your Form 1099-DIV.

    Long-term gains are gains on securities held more than one year. They are generally taxed at a maximum federal rate of 15%.

Traditional IRA (including SEP-IRA) and Roth IRAs
  • When the Fund pays income dividends or capital gain distributions in my IRA, are those amounts taxable?

    No. Income dividends and capital gain distributions are not taxable as long as those assets remain in your IRA.

  • Is the value of my traditional or Roth IRA reported to the IRS each year?

    Yes. Your year-end balance, which appears on the year-end account statement sent to you in early January, is reported to the IRS.

  • If I contributed to my Roth and/or traditional IRA for the tax year, will my contribution be reported to the IRS?

    Yes. Form 5498, which is sent to you in May, reports your total IRA contributions attributed to the previous tax year. This information is reported to the IRS.

  • If I rolled assets from another retirement account into a Dodge & Cox Funds IRA, will that transaction be reported to the IRS?

    Yes. Form 5498 is sent to you in May showing rollover amounts received into your Dodge & Cox Funds IRA during the previous year. This information is reported to the IRS.

  • If I exchange shares in my IRA from one Dodge & Cox Fund to another, is the transaction taxable?

    No. Assets exchanged between Dodge & Cox Funds within your IRA are not taxable. The transaction is not reported to the IRS.

  • If I sold shares in my Dodge & Cox Funds IRA in order to roll the assets into another retirement account, is the transaction taxable?

    No. In general, as long as the investment remains in an IRA or other qualified retirement account, and the rollover was properly completed within 60 days, the proceeds on the Fund shares you sell are not taxable. You may only rollover assets once every 12 months. By late-January the Fund will send you Form 1099-R, which reports the amount of the withdrawal in the previous calendar year from your Dodge & Cox Funds IRA. This information is reported to the IRS. The custodian of the IRA which received the rollover should report the receipt on Form 5498 in May following the year of receipt.

  • If I do a direct transfer from one Fund group to another is the transaction taxable?

    No. In general, a direct transfer from one IRA custodian to another IRA custodian is not taxable. This information is not reported to the IRS.

  • I took a distribution from my Dodge & Cox Funds IRA, is the transaction reported to the IRS?

    Yes. By late-January, the Fund will send you Form 1099-R, which reports the amount of your withdrawal in the previous calendar year from your Dodge & Cox Funds IRA. This information is reported to the IRS.

  • I converted assets from a traditional IRA to a Roth IRA, is the transaction reported to the IRS?

    Yes. A Roth IRA conversion is considered to be a distribution from your traditional IRA and a contribution by way of conversion to a Roth IRA. By early-February, you will receive a Form 1099-R which reports the amount withdrawn from the traditional IRA in the conversion. In May, you will receive a Form 5498 reporting the amount received into your Roth IRA. This information is reported to the IRS. In general, the amount of the conversion must be recognized as taxable income.

Recent Cost Basis Tax Changes
  • How will the changes affect reporting for shares in my account?

    Covered shares are Fund shares acquired after January 1, 2012. If you sell or exchange covered shares within a taxable Fund account, Dodge & Cox Funds will report the cost basis and holding period of the shares sold on Form 1099-B by late-January of the following year. This information will also be reported to the IRS. You will be required by the IRS to use the cost basis information reported on Form 1099-B when completing your annual tax returns.

    Non-covered shares are Fund shares acquired prior to January 1, 2012, or shares transferred into your account without corresponding cost basis information. If you sell or exchange non-covered shares within a taxable Fund account, and the Dodge & Cox Funds have Average Cost basis information for your shares, the cost basis and holding period information will be reported to you on your Form 1099-B. This information will not be reported to the IRS. If you have chosen a method other than the Average Cost method for your non-covered shares, you are responsible for keeping those cost records.

  • I have always received Average Cost tax reporting from Dodge & Cox Funds. Will that continue?

    If you sell or exchange non-covered shares within a taxable Fund account, and the Dodge & Cox Funds have Average Cost basis information for your shares, the cost basis and holding period information will be reported to you on your Form 1099-B. This information will not be reported to the IRS.

  • What changes are anticipated for tax reporting and returns?

    The IRS has drafted changes to Form 1099-B for tax year 2012, adding new boxes for cost basis information. The deadline for mailing Form 1099-B to shareholders is February 15.

    The IRS has drafted changes to Schedule D to Form 1040. There is also a new Form 8949 (Sales and Other Dispositions of Capital Assets) to attach to Schedule D.

Transfers and Multiple Accounts
  • Am I required to use the same cost basis method for all of my taxable accounts?

    No. You may elect a different cost basis method for each of your regular taxable Fund accounts.

  • If I exchange shares of one Fund for another, will my cost basis election for covered shares be carried over to the new Fund account?

    Yes. Dodge & Cox Funds will carry over your elected cost basis method for covered shares if you exchange into a new Fund account.

  • If I transfer covered account shares to a financial intermediary, will my cost basis information transfer?

    Yes. The law requires that Dodge & Cox Funds send your financial intermediary firm a cost basis statement if we have cost basis information for covered shares in your Fund account.

  • If I donate shares as a gift or transfer, does cost basis transfer to the recipient?

    Gifted and transferred shares are a complicated tax issue. Under IRS regulations, gifted covered shares remain covered shares. Generally, a recipient of gifted shares accepts the ‘carryover’ original cost basis and holding period from the donor. However, in the case of shares gifted at a loss, and subsequently sold at a loss, the recipient is required to use the value of the shares at the date of the gift as the cost basis.

    Special tax rules apply in the event of transfers of shares between spouses, between accounts with common ownership, or due to divorce. As Dodge & Cox Funds are not in the business of providing tax or legal advice, we recommend seeking advice from an independent tax advisor.

  • If I inherit shares from a decedent or estate, what cost basis information is used?

    Inherited shares are a complicated tax issue. Usually, the cost basis is the value of the shares on the date of death, and the date of death is used as the acquisition date. However, an authorized representative of an estate can provide alternative instructions.

    Special tax rules apply for certain joint account registrations, trusts, and partnerships. As Dodge & Cox Funds are not in the business of providing tax or legal advice, we recommend seeking advice from an independent tax advisor.

General Cost Basis Information
  • What happens if I do not make an election?

    If you did not elect a cost basis method prior to January 1, 2012, Dodge & Cox Funds’ default cost basis method of Average Cost has been applied to your taxable accounts.

  • How does Average Cost differ from other available cost basis methods?

    The Average Cost basis accounting method is handled uniquely under the new IRS regulations as compared to other cost basis methods. If you elect or are defaulted to the Average Cost basis method for your covered shares, you may retroactively change to another method (revocation) at any time prior to the first redemption or transfer of shares from your account.

    Following the first redemption or transfer of covered shares out of a Fund account, any change from the Average Cost method will be applied prospectively only to new shares acquired. Unlike other cost basis methods where changes can be conveyed via the phone, Average Cost basis elections and revocations must be made online or by submitting a paper Cost Basis Election Form.

  • After making a cost basis method election, can I change my mind and choose another method?

    You may always change a cost basis election prospectively for covered shares acquired from that date and going forward. If you elect or are defaulted to Average Cost, and there have not been any redemptions or transfers of covered shares from your account, you may ‘revoke’ your prior election and retroactively elect a different cost basis method for your covered shares. However, once you sell covered shares using the Average Cost basis method, you may not change your cost basis method on existing covered shares in your account. For all other cost basis methods, you may change your cost basis method on existing covered shares at any time.

  • Am I able to change the cost basis method used for a sale of shares after it has occurred?

    Under current IRS regulations, you are not allowed to change the cost basis method used for a sale after it has occurred.

  • If I have both covered shares and non-covered shares in my account, which shares will be depleted first when I redeem shares?

    If you sell shares in a regular taxable Fund account, Dodge & Cox Funds will deplete any non-covered shares first, unless you specifically identify share lots you wish to sell.

  • I still would like more information. What should I do?

    We are happy to discuss your account options with you. However, as Dodge & Cox Funds are not in the business of providing tax or legal advice, we recommend seeking advice from an independent tax advisor.

    Dodge & Cox Funds are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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