Covered vs Noncovered Securities — What Your Broker Reports (and What You Must)

You're looking at your 1099-B and you keep seeing two words that split everything into separate sections: covered and noncovered. One section shows a nice, complete cost basis. The other shows blanks, zeros, or a note that basis "was not reported to the IRS." Same brokerage, same account, wildly different information — and it changes what you have to do at tax time.

This single distinction — covered versus noncovered securities — is the master key to understanding your 1099-B. It determines whether your broker calculated your cost basis and reported it to the IRS (covered) or left that entirely up to you (noncovered). Get this concept down and the whole form clicks into place: you'll know which numbers to trust, which to supply yourself, and which Form 8949 box each transaction belongs in. This guide explains the law behind it, the phase-in dates that created the split, and exactly what each category means for you.

Where the Distinction Came From

Before 2008, brokers reported only your proceeds — what you sold for — and cost basis was entirely the taxpayer's job. This led to massive underreporting and endless IRS matching problems. So Congress, through the Emergency Economic Stabilization Act of 2008, imposed cost basis reporting requirements: brokers would have to track and report your basis to the IRS, not just your proceeds.

But the rule couldn't apply retroactively to securities already sitting in accounts, so it phased in by asset type based on the acquisition date:

Security type	Covered if acquired on or after
Stocks (individual equities)	January 1, 2011
Mutual funds & DRIP shares	January 1, 2012
Bonds, options, and other securities	January 1, 2014

The dividing line is the acquisition date, not the sale date. A stock you bought in 2010 and sold last year is still noncovered, because you acquired it before the 2011 cutoff.

What "Covered" Means

A covered security is one the broker is required to track. For covered securities:

• The broker calculates your cost basis and reports it to the IRS in Box 1e of the 1099-B.
• The basis number is generally reliable — you can usually use it as-is.
• On Form 8949, these land in Box A (short-term) or Box D (long-term) — the "basis reported to the IRS" boxes. Our Box A vs B vs C guide and Box D vs E vs F guide cover the placement.

Covered securities are the easy case. The broker did the work, the IRS has the number, and unless there's a special adjustment (like a wash sale or equity-comp basis correction), you often don't even need to touch Form 8949 for them.

What "Noncovered" Means

A noncovered security is one the broker is not required to report basis for. For noncovered securities:

• The broker reports your proceeds but often leaves cost basis blank or zero in Box 1e (or reports it "for your information" without sending it to the IRS).
• You are responsible for determining and reporting the correct basis.
• On Form 8949, these land in Box B (short-term) or Box E (long-term) — the "basis not reported to the IRS" boxes.

Noncovered securities are where problems live. If you enter a blank or zero basis literally, your gain balloons and you overpay — the classic missing cost basis problem. You have to reconstruct the real basis from your own records.

Why You Still Have Noncovered Securities Today

More than a decade after the phase-in, noncovered securities remain common because of:

• Long-held positions — stock bought before 2011, funds before 2012, that you're only now selling.
• Transfers between brokers — when shares move, basis information often doesn't follow cleanly, and the receiving broker may flag them noncovered.
• Inherited and gifted shares — these frequently arrive without basis data, landing in the noncovered bucket.
• DRIP and reinvestment lots from before the cutoff dates.
• Corporate actions — spinoffs and mergers that scrambled basis tracking.

So even a brand-new sale can be noncovered if the underlying shares are old or arrived from elsewhere.

How to Handle Each on Your Return

The two categories call for different levels of effort:

Covered securities:
1. Trust the reported basis in Box 1e unless you know of an adjustment.
2. Report in Box A/D — or, if there are no adjustments, potentially skip Form 8949 and use Schedule D summary lines.

Noncovered securities:
1. Reconstruct the correct basis from purchase confirmations, old statements, transaction history, or (for inherited/gifted shares) the applicable basis rules.
2. Enter your correct basis in column e on Form 8949, in Box B/E.
3. If the broker reported an incorrect basis to the IRS (rare for noncovered but possible), use adjustment code B — otherwise just enter the right number.

Whatever the category, the reporting mechanics flow through our Form 8949 from 1099-B walkthrough.

FAQ

What is a covered security?

A security the broker is legally required to track and report cost basis to the IRS for — generally stocks acquired in 2011 or later, mutual funds in 2012 or later, and bonds/options in 2014 or later. Its basis appears in Box 1e and is usually reliable.

What is a noncovered security?

One the broker doesn't report basis for. It shows proceeds but blank or zero basis, and you're responsible for determining and reporting the correct cost basis yourself.

Why is my cost basis missing on some transactions but not others?

Because they're noncovered — the shares were acquired before the cost basis reporting cutoff dates, transferred in from another broker, or inherited/gifted. Covered securities show basis; noncovered ones leave it to you.

Does covered vs noncovered depend on when I bought or sold?

When you acquired the security, not when you sold it. A stock bought in 2010 is noncovered even if sold today, because it predates the 2011 stock cutoff.

Which Form 8949 box do covered and noncovered securities go in?

Covered: Box A (short-term) or Box D (long-term). Noncovered: Box B (short-term) or Box E (long-term). Transactions not on a 1099-B at all go in Box C or F.

Do I have to report noncovered securities even if basis is blank?

Yes. You must report the sale and supply the correct basis yourself. Leaving basis at zero overstates your gain and causes you to overpay tax.

Bottom Line

Covered versus noncovered is the distinction that governs your entire 1099-B. Covered securities — the modern default, thanks to the 2008 reporting law and its 2011–2014 phase-in — come with basis the broker calculated and reported, and you can usually trust it. Noncovered securities, the older or transferred-in lots, come with proceeds only, and the burden of getting basis right falls squarely on you.

Know which category each transaction falls into, trust the covered numbers, reconstruct the noncovered ones, and place each in the correct Form 8949 box. Master this one concept and the rest of capital-gains reporting stops being guesswork.

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