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  • An IRS tax form provided by a broker or mutual fund company to the IRS and the client (payee) to report certain information on security transactions. The information from Form 1099-B may be used for preparing IRS Form 1040, Schedule D.
    (Post-Effective Shares) - Shares acquired on or after IRS-designated effective dates (January 1, 2011, for equities - some exceptions may apply; January 1, 2012, for mutual funds, DRIPs, and certain exchange-traded funds (ETFs); January 1, 2014, for less complex bonds, options, and other applicable securities as defined by the IRS); and January 1, 2016, for complex bonds and options that are subject to cost basis reporting on Form 1099-B.
    (Pre-Effective Shares) – Shares acquired prior to IRS-designated effective dates and shares without basis information.
    Method of calculating the cost basis of mutual funds by dividing the total cost of shares by the total number of shares owned in a fund. This number (the per share average cost basis) is then multiplied by the number of shares sold and compared to the actual sale amount to compute a gain or loss. Beginning in 2012, taxpayers who elect to use average cost will compute separate averages for fund shares held in different accounts. Taxpayers will be permitted to average the basis of mutual fund shares in one account but not average them in another account. Also, unless the fund or broker elects otherwise, taxpayers will compute a separate average for fund shares in an account that are covered securities and a separate average for fund shares in an account that are noncovered securities.
    The Specific Identification method requires the largest amount of recordkeeping, but allows you to manage the amount of income tax owed by identifying the specific shares that may be most beneficial from the tax point of view. For example, you may identify as sold those shares that have been owned for more than a year to avoid a short-term capital gain. This method may help you to pay taxes at the lower rate for long-term investments. Eventually, you may sell the older, and possibly less expensive, shares and be responsible for income tax on that gain—unless they are part of your estate, in which case your heirs may be able to step-up the cost basis to the fair market value of the shares as determined by your estate administrator.
    The FIFO method is a form of Specific Identification (see below) that dictates that the first shares purchased must be sold first. This is the simplest method to use for taxes, but may create the largest amount of income to be taxed, because the longer you own a stock, the bigger your capital gain may be. FIFO is the default method used by the IRS if another method is not chosen.

    New regulations concerning the reporting of cost basis to the Internal Revenue Service (IRS) were issued in 2010. The regulations stem from legislation, enacted in October 2008 as part of the Emergency Economic Stabilization Act, which requires brokers and mutual fund companies to report cost basis information to both investors and the IRS as part of Tax Form 1099-B. Watch our video series for a quick overview.

    Cost Basis Reporting Schedule by Phase and Effective Dates
    Phase Type of Security Security Acquisition Date Effective Tax Year Tax Form Mail Date
    1 Equities (Common, Preferred, and Foreign Stock)* and Exchange Traded Funds (ETFs) On or after
    01-01-11
    2011 2012
    2 Mutual Funds and Dividend Reinvestment Plan (DRIP) Shares On or after
    01-01-12
    2012 2013
    3 Less Complex Debt and Options (including warrants and rights) On or after
    01-01-14
    2014 2015
    4 Complex Debt and Options On or after
    01-01-16
    2016 2017

     

    *Some firms, including T. Rowe Price Brokerage, treat certain equity shares in a dividend reinvestment plan (DRIP) as covered beginning on or after January 1, 2012, while others may treat those shares as covered beginning on January 1, 2011.
    Accounts for which a tax Form 1099-B is not generated, such as IRAs and other retirement plans, generally are not affected
    by these changes.

    The Changes
    Brokers and mutual fund companies are required to track a customer's cost basis, holding period, and sale proceeds of securities acquired on or after the effective dates—called covered shares—and report them on Tax Form 1099-B. Shareholders are required to report sales of covered and noncovered (acquired before the effective dates) securities to the IRS on Schedule D of Tax Form 1040. The new IRS regulations only apply to taxable accounts. Money market funds and tax-deferred accounts, such as IRAs, 529 accounts, and other retirement plans, generally are not impacted by these changes.

    Cost Basis Resources
    Learn more about the basics of cost basis, cost basis reporting of securities, and the implications of different cost basis methods on your personal tax strategy.

    For more information about the rules, visit IRS Third Party Information Reporting.

    New regulations effective January 1, 2012, require issuers of specified securities to report organizational actions affecting the basis of such securities, including items such as mergers, liquidations, and reclassifications that affect cost basis, commonly referred to as "corporate actions." The corporate actions are reported on Form 8937-Report of Organizational Actions Affecting Basis of Securities. Our mutual funds are subject to this reporting requirement. The cost basis we will report to you on Form 1099-B will have incorporated necessary adjustments that resulted from the corporate actions listed.

    New Regulations for Mutual Funds

    Beginning in tax year 2012, the IRS requires mutual fund companies and brokers to report on Form 1099-B the cost basis of sales of covered mutual fund shares purchased on or after January 1, 2012. You still will be required to calculate and report the gains and losses realized on sales of noncovered shares acquired prior to January 1, 2012. Money market funds and tax-deferred accounts, such as IRAs, 529 accounts, and other retirement plans, generally are not impacted by these changes.

    What Do I Need to Do Now

    If you'd like to use Average Cost for covered mutual fund shares, you don't need to do anything. Your mutual fund account will default to Average Cost for covered mutual fund shares unless you select another method. Average Cost is one of the more popular cost basis methods for mutual funds and requires the least amount of recordkeeping by you or your tax advisor.

    Covered and Noncovered Share Redemptions

    If you sell or exchange shares after January 1, 2012, we generally will dispose of all noncovered shares first and then the covered shares, in each case in accordance with the cost basis method on your account to the extent possible. For example, if your account method is Average Cost or First In First Out, T. Rowe Price will dispose of all noncovered shares before disposing of covered shares; in each case, noncovered shares will be disposed in a First In First Out order. If you choose to specify individual lots at the time of redemption, we will deplete the shares in accordance with your specification to the extent possible.

    Choosing a Cost Basis Method Best Suited to Your Needs

    While Average Cost is the default method we use for covered shares of mutual funds, you may choose other methods when selling covered mutual fund shares.

    To choose your cost basis method, log in to your account and use this online application. If you would like to keep Average Cost as your method, you don't need to do anything, although you may confirm your choice of Average Cost online or by mail or fax. If you do not want to use Average Cost, you may select another method online or by mail or fax at any time. In some cases, you also may select a method other than Average Cost over the phone.

    If you change your cost basis method from Average Cost to another method after a sale or exchange of covered shares, the new cost basis method will apply only to shares purchased after the date that the change request is processed.

    We offer the following IRS-approved cost basis methods for mutual funds:

    Cost Basis Methods
    Default Method Description
    Average Cost (method we generally provide to you for your noncovered shares on your Form 1099-B)
    for mutual funds and DRIPs only

    The cost of shares, including reinvested dividends and capital gains distributions, divided by the number of shares held, is used to compute the average cost of each share. Shares are disposed of on a first in first out basis.

    If you would like to use Average Cost for your covered shares, you do not need to do anything. Average Cost will be calculated separately for your covered and noncovered shares

    Please note: the IRS requires that changes into and out of Average Cost be made in writing, either online or through U.S. mail or fax. Other methods may be changed online, by mail or fax, or by phone.
    Other Methods Description
    First In First Out (FIFO) Assets acquired first are sold first.
         Purchase Price of Particular Shares Purchased First = FIFO Cost
    Last In First Out (LIFO) Assets acquired last are sold first.
           Purchase Price of Specific Shares Sold = Cost of Shares Sold
    Highest In First Out Highest-cost shares are sold first.
           Purchase Price of Specific Shares Sold = Cost of Shares Sold
    Low Cost First Out Lowest-cost shares are sold first
    Loss Gain Utilization
    for mutual funds only
    Evaluates losses and gains, and also strategically selects lots based on the loss/gain in conjunction with the holding period.
    Specific Lot Identification You select the specific shares you wish to sell or exchange at the time of each sale. The shares you select determine the cost basis and holding period.

    Please note: to use Specific Lot Identification when selling or exchanging shares, first choose in writing a cost basis method for your account other than Average Cost (such as, FIFO, LIFO, etc.). This can be changed online or on a form. When ready to sell or exchange shares, please call us—to identify the specific shares you wish to sell or exchange—at 1-800-225-5132.
    Average Cost

    T. Rowe Price defaults all mutual fund accounts to Average Cost, and all covered mutual fund shares when sold will be reported using Average Cost. Under the new regulations if you switch out of Average Cost or back into this method, the IRS requires that you provide written instructions to us. To make this simpler, you may do so using our secure online system for your accounts or we can provide a form that you may mail or fax to us.

    What is the Average Cost Method

    Average Cost calculates gains or losses on shares sold based on the average purchase price of all shares you own in a mutual fund account. The gain or loss on shares you sell or exchange is the difference between the proceeds of the sale or exchange and the cost basis of the shares.

    Total Dollars Invested ÷ Total Number of Shares Held =
    Average Cost per Share

    Average Cost Single Category

    The Average Cost Single Category method uses the average cost per share of all shares held in the account and any shares that are sold are considered to be those held longest in the account. T. Rowe Price uses the Average Cost Single Category method as the default method of calculating cost basis for covered and noncovered mutual fund shares, if available, and reporting the cost basis on Tax Form 1099-B. This information is not reported to the IRS for sales of noncovered shares.

    Average Cost Double Category

    The Average Cost Double Category method—which divides shares into two groups: those held one year or less (short-term shares) and those held longer than one year (long-term shares—was eliminated by the IRS as of April 1, 2011, and may no longer be used.

    How Average Cost Works

    The following examples illustrate the calculation of cost per share in relation to Average Cost after the new regulations for mutual fund cost basis reporting took effect on January 1, 2012. These examples show only the cost of shares and do not include gain and loss information. For examples that include the calculation of realized gains and losses, please visit Calculating Taxes on Mutual Funds Transactions.

    Example 1 — Average Cost Election or Default
    If you purchase covered shares and elect or default into Average Cost and then sell any of those shares without changing the method, then all shares purchased prior to the sell date will be locked into Average Cost.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 Purchase 10 $1.00 $10.00
    02-01-12 Purchase 10 $2.00 $20.00
    03-01-12 Purchase 10 $3.00 $30.00
    Total Average Cost Method =   30 $2.00 $60.00
    05-01-12 Redeem 10 $2.00 $20.00

    Example 2 — Revocation of Average Cost Election or Default
    If you purchase covered shares with an Average Cost election or default and then change the method prior to the first sale of any of those shares, the shares sold will use the new method selected.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 Purchase 10 $1.00 $10.00
    02-01-12 Purchase 10 $2.00 $20.00
    03-01-12 Purchase 10 $3.00 $30.00
    Total Average Cost Method =   30 $2.00 $60.00
    04-01-12 - Change to FIFO Purchase 10 $4.00 $40.00
    05-01-12 Redeem 10 $1.00 $10.00

    Example 3 — Prospective Change with Locked Average Cost on Redeemed Shares
    If you purchase covered shares with an Average Cost election or default and then sell any of those shares without changing the method, then all shares purchased prior to the sell date will be locked into Average Cost. New shares may be purchased using a different method.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 Purchase 10 $1.00 $10.00
    02-01-12 Purchase 10 $2.00 $20.00
    03-01-12 Purchase 10 $3.00 $30.00
    Total Average Cost Method =   30 $2.00 $60.00
    04-01-12 Redeem 10 $2.00 $20.00
    05-01-12 - Change to FIFO Purchase 10 $4.00 $40.00
    06-01-12 Purchase 10 $4.00 $40.00
    06-15-11 Purchase 10 $5.00 $50.00
    07-01-12 Redeem 10 $2.00 $20.00
    08-01-12 Redeem 10 $2.00 $20.00
    09-01-12 Redeem 10 $4.00 $40.00

    Example 4 — Non-Average Cost Election (more examples below)
    If you choose a method other than Average Cost at your first covered purchase, covered shares sold will use the method selected or you may change the method at any time prior to sale for any shares.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 – FIFO Purchase 10 $1.00 $10.00
    02-01-12 – FIFO Purchase 10 $2.00 $20.00
    03-01-12 – Change to LIFO Purchase 10 $3.00 $30.00
    04-01-12 Redeem 10 $3.00 $30.00
    FIFO and LIFO
    How FIFO and LIFO Work

    The following examples illustrate how First In First Out (FIFO) and Last In First Out (LIFO) work after the new regulations for mutual fund cost basis reporting took effect on January 1, 2012.

    First In First Out (FIFO) and Last In First Out (LIFO) Methods

    Example 1 — FIFO
    If you purchase covered shares and choose FIFO (see rules for Average Cost that may apply), then all of the first shares purchased will be the first shares sold.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 Purchase 10 $1.00 $10.00
    02-01-12 Purchase 10 $2.00 $20.00
    03-01-12 Purchase 10 $3.00 $30.00
    05-01-12 Redeem 10 $1.00 $10.00

    Example 2 — LIFO
    If you purchase covered shares and choose LIFO (see rules for Average Cost that may apply), then all of the last shares purchased will be the first shares sold.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 Purchase 10 $1.00 $10.00
    02-01-12 Purchase 10 $2.00 $20.00
    03-01-12 Purchase 10 $3.00 $30.00
    05-01-12 Redeem 10 $3.00 $30.00
    Other Methods
    How Other Methods Work

    The following examples illustrate how Highest In First Out (HIFO) and Low Cost First Out work after the new regulations for mutual fund cost basis reporting took effect on January 1, 2012.

    Highest In First Out and Low Cost First Out Methods

    Example 1 — Highest In First Out
    If you purchase covered shares and choose HIFO (see rules for Average Cost), then shares purchased with the highest cost will be the first shares sold.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 Purchase 10 $1.00 $10.00
    02-01-12 Purchase 10 $2.00 $20.00
    03-01-12 Purchase 10 $3.00 $30.00
    04-01-12 Purchase 10 $1.00 $10.00
    05-01-12 Redeem 10 $3.00 $30.00

    Example 1 — Low Cost First Out
    If you purchase covered shares and choose Low Cost First Out (see rules for Average Cost), then shares purchased with the lowest cost will be the first shares sold.

     
    Date Action Shares Cost per Share Total Cost
    01-01-12 Purchase 10 $2.00 $20.00
    02-01-12 Purchase 10 $1.00 $10.00
    03-01-12 Purchase 10 $3.00 $30.00
    04-01-12 Purchase 10 $4.00 $40.00
    05-01-12 Redeem 10 $1.00 $10.00
    Loss Gain Utilization Method — for Mutual Funds Only

    Example 1 — Loss Gain Utilization
    If you purchase covered mutual fund shares and choose Loss Gain Utilization (see rules for Average Cost), the system evaluates losses and gains and strategically selects lots based on the loss/gain in conjunction with the holding period. This election method depletes lots with losses before lots with gains with the objective of minimizing taxes. For lots that yield a loss, short-term lots will be redeemed ahead of long-term lots. For gains, long-term lots will be redeemed ahead of short-term lots. With favorable long-term capital gains rates, long-term gain lots are given priority over short-term gains to reduce taxes assessed.

    Gifts and Inherited Covered Securities

    Transfers of covered gifted and inherited securities remain covered securities when transferred and accompanied by transfer statement.

    S Corporations

    S Corporations are eligible for 1099-B tax reporting to the IRS beginning with tax year 2012. Brokers must report sales of covered securities that S corporations acquire on or after January 1, 2012.

    Cost Basis Regulations for Stocks

    Beginning with tax year 2011, the IRS requires mutual fund companies and brokers to report on Form 1099-B the cost basis of sales of covered shares of equities (stocks) purchased on or after January&nbs1, 2011. You still will be required to calculate and report the gains and losses realized on sales of noncovered shares acquired prior to January 1, 2011.

    We provide First In First Out (FIFO) as the default cost basis method on covered shares for stocks.

    New Cost Basis Regulations for Dividend Reinvestment Plans, Short Sales, and Wash Sales

    Some firms, including T. Rowe Price Brokerage, treat certain equity shares in a dividend reinvestment plan (DRIP) as covered beginning on or after January 1, 2012, while others may treat those shares as covered beginning on January&nbs1, 2011. T. Rowe Price Brokerage will report on Form 1099-B the cost basis of sales of covered shares in a DRIP beginning with the 2012 tax year.

    You still will be required to calculate and report the gains and losses realized on sales of noncovered shares acquired prior to January 1, 2011.

    Taxpayers are permitted to use the Average Cost method for covered stock in a DRIP for plans requiring reinvestment of at least 10% of every dividend paid in identical stock.

    Beginning in tax year 2011, the IRS requires brokers to report on Form 1099-B short sales opened after 2010 in the year in which the short sale is closed.

    Frequently Asked Questions
    Dividend Reinvestment Plans
    Do all dividends have to be reinvested for securities to qualify as a DRIP?

    No. The regulations only mandate that the plan documents of a DRIP require that at least 10% of every dividend paid be reinvested in identical stock.

    How is an averaged basis determined for mutual fund or DRIP stock when some of the shares are covered securities and some are noncovered?

    The regulations treat mutual fund and DRIP stock that is a noncovered security as being held in a separate account from stock that is a covered security. Because stock is averaged on an account-by-account basis under the new regulations, the basis of shares that are covered securities will be the average basis of only the covered securities and the basis of the shares that are noncovered securities will be the average basis of only the noncovered securities. However, if a broker has accurate basis information for shares that are noncovered-securities and makes a "single-account election" for some or all of the shares, the shares subject to the single-account election are treated as covered securities and their basis is averaged with the shares that are covered securities.

    The third phase of the Cost Basis Reporting regulations commence on January 1, 2014. Beginning on that date, T. Rowe Price Brokerage will track and report cost basis information for less complex bonds and options (including warrants and rights) and will begin applying certain bond amortization methods for applicable bonds purchased on or after January 1, 2014.

    What the IRS Regulations Mean to You

    T. Rowe Price Brokerage will track and report cost basis information for all covered securities on Form 1099-B and bond amortization information for applicable bonds on Form 1099-INT, Form 1099-OID, or other forms specified by the IRS, in accordance with the above timelines. As always, you are solely responsible for reporting accurate cost basis information to the IRS on your tax returns when you sell securities in a taxable account.

    Accounts for which a Tax Form 1099-B is not generated, such as IRAs and other retirement plans, generally are not affected by these changes.

    Cost Basis and Calculation Methods

    Cost basis is used for income tax purposes and reflects the original purchase price or value of an asset, such as a security or mutual fund, including fees and commissions, as adjusted for stock splits, return of capital, and other applicable adjustments. Cost basis also is known as tax basis or basis and is used to determine the capital gain or loss of the asset when it is sold or disposed. The capital gain or loss is the difference between the cost basis of the asset and the value of the asset when sold.

    Cost Basis Method Choices for Equities (Stocks), ETFs, Options, Bonds, and Other Securities

    There are several methods of calculating cost basis for covered securities. The IRS uses First In First Out (FIFO) as the default method. We use FIFO for equities, ETFs, bonds, and options (including warrants and rights) and Average Cost for mutual funds. However, other methods can be used.

    You do not need to choose a cost basis method until you sell a covered security. However, you may select a cost basis method in advance, if you choose to do so. If so, please review the options below:

    • If you would like to use our default methods (Average Cost for mutual funds and FIFO for all other covered securities, including options), you do not need to take action, and T. Rowe Price Brokerage will maintain cost basis records and report this information to you and the IRS. The cost basis method currently selected on your account for equity securities will be the default cost basis method for options and bonds.
    • If you would like to use one of the other cost basis methods listed on our website for covered securities, you either may make your selection at the time of sale or follow the steps below to change the method to be used for your account prior to completion of a sale transaction:
      1. Log in to your Brokerage account and edit your selection online on the gain/loss page; or
      2. Download and complete the Cost Basis Method Change form at
        www.troweprice.com/forms and return it to the address provided; or
      3. Call T. Rowe Price Brokerage at 1-800-225-7720.
    • For all securities, specifying a lot or changing cost basis method must be done at the time of trade or before settlement date, typically within three days from the trade date for equities and bonds and within one day from the trade date for mutual funds and options. Once the trade settles, the method used will be final and cannot be changed.
    Cost Basis Method Choices for Equities (Stocks), Options, Bonds, and Other Securities*
    Method What it Means
    First In First Out (FIFO)
    default method
    for equities
    Shares acquired first are sold or disposed of first.
    Last In First Out (LIFO) Shares acquired last are sold or disposed of first.
    Highest In First Out Highest-cost shares are sold first.
    Low Cost First Out Lowest-cost shares are sold or disposed of first.
    Loss Gain Utilization
    for mutual fund only
    Evaluates losses and gains, and also strategically selects lots based on the loss/gain in conjunction with the holding period.
    Specific Lot Identification You select the specific shares you wish to sell or exchange at the time of each sale. The shares you select determine the cost basis and holding period.
    Please note: to use Specific Lot Identification when selling or exchanging shares, first choose in writing a cost basis method for your account other than Average Cost (such as, FIFO, LIFO, etc.). This can be changed online or on a form. When ready to sell or exchange shares, please call us—to identify the specific shares you wish to sell or exchange—at 1-800-225-7720.
    Average Cost
    for mutual funds and DRIPs only
    The cost of shares, including reinvested dividends and capital gains distributions, divided by the number of shares held, is used to compute the average cost of each share. Shares are disposed of on a first in first out basis.
    *Applies only to covered securities. Covered securities are those acquired on or after the effective dates for cost basis reporting (i.e., January 1, 2011, for equities; January 1, 2012, for mutual funds; January 1, 2014, for certain less complex bonds and options; and January 1, 2016, for more complex bonds and options). "Other Securities" includes ETFs, fixed income, warrants, and rights.
    Bond Amortization Method Choices

    There are several bond amortization methods from which to choose for determining income and cost basis. T. Rowe Price's default methods for reporting bond amortization to you and the IRS are:

    1. Do not treat all interest as original issue discount (OID)
    2. Amortize Premium on Taxable Bonds based on Constant Yield Method
    3. Accrue Market Discount based on Ratable Method
    4. Do not include Market Discount in income annually

    If you would like to keep the T. Rowe Price default methods listed above, you do not need to take action. T. Rowe Price Brokerage will use the applicable methods for individual bond holdings acquired and sold after January 1, 2014. If you wish to make a different selection, please contact a representative at 1-800-225-7720.

    Subject to certain IRS restrictions (consult IRS Publication 550 and your tax advisor), you may change the default amortization selections to your preferred method for all applicable bond holdings acquired on or after January 1, 2014. Please review the table on Page 2 of this notice for additional explanation.

    Bond Amortization Methods1
    Methods What it Means
    Treat All Interest as Original Issue Discount (OID)
    Default Method:
    Do not treat all interest as OID
    You may elect to treat all interest on a debt instrument (typically bonds) acquired during the tax year as OID and include it in income. Interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest as adjusted by any amortizable bond premium or acquisition premium. If you choose to treat all interest as OID, then the bond premium will be amortized using the constant yield method and accrued market discount will be calculated using the constant yield method and included in annual income.2
    Amortize Premium on Taxable Bonds
    Default Method: Amortize premium on taxable bonds based on constant yield method
    Bond premium is the amount by which the price you paid (your basis) is more than the total of all amounts you will receive on the bond (other than qualified stated interest) after your purchase, which generally is the maturity value for a bond issued without OID.
    For example:
    A bond with a maturity value of $1,000 generally would have a $50 premium if you buy it for $1,050. If the bond yields taxable interest, you can choose to use a part of (or amortize) the premium to generally reduce the amount of interest that can be included in your income each year over the life of the bond.
    Our default method is to amortize the bond premium using the constant yield method, and we will reduce your basis in the bond by the amortization for the year. Even though this is our default method for reporting to you and to the IRS, you must still follow the IRS requirement to make an election to amortize bond premium. You may change this default method to not amortize bond premium. The change will be made effective for the current year and subsequent years, but we cannot make the change retroactive for prior years.
    Accrued Market Discount
    Default Method: Accrue market discount based on ratable method
    The accrued market discount is calculated in one of two ways:
    1. Ratable Accrual Method – Treats the market discount as accruing in equal daily installments during the period in which you hold the bond. The daily installments are calculated by dividing the market discount by the number of days after the date you acquired the bond, up to and including its maturity date. The daily installments are multiplied by the number of days you held the bond to calculate your accrued market discount.
    2. Constant Yield Method – You may choose to accrue market discount using a constant interest rate. Your choice takes effect on the date you acquired the bond. This method treats the bond as having been issued on the date you acquired it. It treats the amount of your basis (immediately after you acquired the bond) as the issue price. Then the formula is applied for constant yield method as shown in IRS Publication 1212.
    If you are treating all interest as OID, then the Constant Yield Method is the only choice for calculating Accrued Market Discount.
    Include Market Discount in Income Annually
    Default Method: Do not include market discount in income annually
    When purchasing a market discount bond, you may choose to accrue the market discount over the period you own the bond and include the accrual for the current taxable year in your current income. Once you make this choice, it will apply to all market discount bonds you acquire during the tax year and in later tax years.
    1 Applies only to bond holdings acquired on or after January 1, 2014 (for certain less complex bonds) and January 1, 2016 (for more complex bonds).
    2 Learn more about all OID elections at Treasury Regulations Section 1.1272-3. Learn more about accrual of OID at IRS Publication 1212.
    Any methods we have on our record, whether by default or by your election, and any change or revocation you notify us with respect to any methods on our record are not binding on the Internal Revenue Service (IRS). You must follow the IRS requirements to make the applicable election on your tax return, and you may need to seek IRS approval for any change or revocation of an election. Please see IRS Publication 550 for more information and consult your tax advisors.
    T. Rowe Price (including T. Rowe Price Group, Inc., and its affiliates) and its associates do not provide legal or tax advice. Any tax-related discussion, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this information.
    The Basics of Cost Basis
    Cost Basis, Gains and Losses, and Holding Period

    Cost basis—also known as tax basis or basis—generally is the price paid for an asset or investment, including, if applicable, reinvested dividends and capital gains distributions. Cost basis is used to determine the taxable gain or loss of an asset when it is sold. The capital gain or loss is the difference between the cost basis of the asset and the current market value of the asset when sold or disposed.

    Current Market Value - (Original Value + Fees + Commissions + Corporate Actions + Other Applicable Adjustments) = Gain or Loss


    The length of time you own the security is called a holding period and determines whether your gain or loss is considered short-term or long-term. Short-term shares are held for one year or less, and long-term shares are held for more than one year.

    Covered and Noncovered Shares

    The new regulations use terms to distinguish between share sales that mutual fund companies and brokers must report cost basis information to the IRS and those the companies do not need to report.

    Mutual Funds and DRIPs

    Covered shares are mutual fund shares acquired on or after January 1, 2012, and, for certain firms, including T. Rowe Price Brokerage, DRIP shares acquired on or after January 1, 2012. We're required to report the cost basis of any sales or exchanges of covered shares to you and the IRS.

    Noncovered shares are mutual fund shares acquired prior to January 1, 2012, and shares without basis information. We are not required to report cost basis information for these shares to the IRS. Certain firms, including T. Rowe Price Brokerage, may treat DRIP shares acquired before January 1, 2012, as noncovered shares.

    Stocks

    Covered shares are stock shares acquired on or after January 1, 2011. We're required to report the cost basis of any sales or exchanges of covered shares to you and the IRS.

    Noncovered shares are stock shares acquired prior to January 1, 2011, and shares without basis information. We are not required to report cost basis information for these shares to the IRS.

    Cost Basis Calculation Methods

    The IRS allows three methods for determining the cost basis—First In First Out (FIFO), Average Cost, and Specific Identification. These methods are explained below. For simplicity purposes, we do not include commissions, fees, corporate actions, and other applicable adjustments in these examples. We recommend that you keep copies of your statements or confirmations to accurately calculate your cost basis.

    First In First Out (FIFO) - for Stocks, ETFs, Options, Bonds, and Mutual Funds

    The FIFO method is a form of Specific Identification (see below) that dictates that the first shares purchased must be sold first. This is the simplest method to use for taxes, but may create the largest amount of income to be taxed, because the longer you own a stock, the bigger your capital gain may be. FIFO is the default method used by the IRS if another method is not chosen. Cost basis using FIFO is calculated as follows:

    For example, you purchased 10 shares of Stock A on a monthly basis for 5 years. Assume you bought the first 10 shares at $20 each and in subsequent months the stock rose by a dollar each month. You decide to sell 50 shares. For FIFO, you will use the cost paid per share for each of the first 5 months.

    (10 shares x $20) + (10 shares x $21) + (10 shares x $22) + (10 shares x $23) + (10 shares x $24) = $1,100
    Specific Identification - for Stocks, ETFs, Options, Bonds, and Mutual Funds

    The Specific Identification method requires the largest amount of recordkeeping, but allows you to manage the amount of income tax owed by identifying the specific shares that may be most beneficial from the tax point of view. For example, you may identify as sold those shares that have been owned for more than a year to avoid a short-term capital gain. This method may help you to pay taxes at the lower rate for long-term investments. Eventually, you may sell the older, and possibly less expensive, shares and be responsible for income tax on that gain—unless they are part of your estate, in which case your heirs may be able to step-up the cost basis to the fair market value of the shares as determined by your estate administrator. Cost basis using Specific Identification method is illustrated as follows:

    For example, you purchased 10 shares of Stock A on a monthly basis for 5 years. Assume you bought the first 10 shares at $20 each and in subsequent months the stock rose by a dollar each month. You decide to sell 50 shares. At the time of sale, you have adequately identified a particular set of 50 shares from purchases made in months 16 to 20.
    10 shares x ($20 + $15) = $350.00
    10 shares x ($20 + $16) = $360.00
    10 shares x ($20 + $17) = $370.00
    10 shares x ($20 + $18) = $380.00
    10 shares x ($20 + $19) = $390.00
    Total Cost Basis for the 50 Specific Shares = $1,850.00
    In using Specific Identification, the actual cost basis of each stock, bond, or mutual fund purchase is used to calculate gains when shares are sold:
    (Purchase Price of the Selected Specific Shares Sold = Cost of Shares Sold)

    There are common types of Specific Identification:

    Specific Identification for Mutual Funds and Stocks
    Specific Identification Cost Basis Method Selected by Customer to Sell Shares Definition
    First In First Out (FIFO) Assets acquired first are sold first.
    Last In First Out (LIFO) Assets acquired last are the ones that are sold first.
    Highest In First Out Highest-cost shares are sold first.
    High Cost Long-Term (stocks and bonds only) Highest-cost shares with a long-term holding period are sold first.
    High Cost Short-Term (stocks and bonds only) Highest-cost shares with a short-term holding period are sold first.
    Low Cost First Out Lowest-cost shares are sold first.
    Low Cost Long-Term (stocks and bonds only) Lowest-cost shares with a long-term holding period are sold first.
    Low Cost Short-Term (stocks and bonds only) Lower-cost shares with a short-term holding period are sold first.
    Loss Gain Utilization (mutual funds only) Evaluates losses and gains, and also strategically selects lots based on the loss/gain in conjunction with the holding period.
    Specific Lot Identification You select the specific shares you wish to sell or exchange at the time of each sale. The shares you select determine the cost basis and holding period.
    Average Cost

    Average Cost is our Default Method for Mutual Funds. It is available for Dividend Reinvestment Plans (DRIPs) and Mutual Funds Only.

    The Average Cost method, the most commonly used method, is used to determine the average cost per share and generally results in moderate income tax. It is calculated as follows:
    Total Dollars Invested ÷ Total Number of Shares Held = Average Cost per Share

    Average Cost Single Category
    The Average Cost Single Category method uses the average cost per share of all shares held in the account and any shares that are sold are considered to be those held longest in the account. Currently, T. Rowe Price uses the Average Cost Single Category method of calculating cost basis for mutual funds, if available, on Tax Form 1099-B. Currently, this information is not reported to the IRS.

    For example, you own 120 shares of a mutual fund purchased in the past at a price of $8.00 per share, for a total cost of $960.00. The fund pays a dividend of $0.40 per share, so you are due to receive $48.00 in dividends, but you reinvest the dividends in the fund. The current share price of the fund is $12.00, so you are able to purchase four more shares with the dividends. Your average cost per share now becomes $8.1290 ($1,008/124 shares owned).

    120 x $8 = $960 + (120 x $0.40) = $1,008
    120 x $0.40 = $48 ÷ $12 (current price) = 4 shares + 120 = 124 shares
    $1,008 ÷ 124 = $8.1290 average cost

    Average Cost Double Category
    The Average Cost Double Category method—which divides shares into two groups: those held one year or less (short-term shares) and those held longer than one year (long-term shares)—was eliminated by the IRS as of April 1, 2011, and may no longer be used.

    Tax Implications of Cost Basis Calculation Methods

    Understanding the implications of different cost basis methods on your personal tax strategy is important. There are some key factors you should keep in mind when considering your strategy:

    • Beginning in 2011 for all stocks purchased on or after January 1, 2011, your brokerage firm is required to report the cost basis information of shares sold on Tax Form 1099-B. Therefore, your brokerage firm will ask you to choose a cost basis method for these stocks or your brokerage firm may default you to the IRS method. The IRS default method for stocks is First In First Out (FIFO).
    • Some firms, including T. Rowe Price Brokerage, will treat certain equity shares in a dividend reinvestment plan (DRIP) as covered beginning on or after January 1, 2012, while others may treat those shares as covered beginning on January&nbs1, 2011. T. Rowe Price Brokerage uses FIFO as the default method for covered shares in a DRIP.
    • Beginning in 2012 for mutual funds shares purchased on or after January 1, 2012, your mutual funds (through their transfer agents or your brokerage firm) are required to report the cost basis of shares sold on Tax Form 1099-B. Therefore, your broker or mutual fund company will ask you to choose a cost basis method for your mutual fund shares or your mutual funds may default you to a method acceptable to the IRS. Note that if you decide to use Average Cost for the covered shares of a particular fund, you must use that method once you have sold covered shares of that fund. If you do not want to use Average Cost, you may change to another method prospectively or you may revoke the Average Cost method prior to any sale of covered securities of that fund. In general, you may use a different method for another fund.
    • T. Rowe Price will use the method you select, or, if you don't choose a method, we will use the default method for reporting your cost basis to the IRS as required according to the reporting schedule of the new cost basis regulation. For T. Rowe Price mutual funds, our default method is Average Cost.
    • Beginning in 2014 for less complex bonds, options, and other IRS-specified securities purchased on or after January 1, 2014 (or a later date specified by the IRS), your brokerage firm will be required to report the cost basis information of those securities sold on Tax Form 1099-B. Therefore, your brokerage firm, if applicable, may ask you to choose a cost basis method for these securities or your brokerage firm may default to a method acceptable to the IRS.

    If you reinvest dividends and capital gains, keeping good records of the cost basis is especially important. Distributions to you generally are taxable even if you reinvest them. The reinvested distributions increase the cost basis of your investment, so it is important to keep a record of all investments, including shares acquired by reinvestment of distributions.

    For example, you bought 100 shares of a stock for $1,000 last year and reinvested dividends of $100 in Year 1. The following year, you reinvested $200 in distributions. Because reinvested distributions are taxable, even though you didn't have the cash in hand, you have acquired a tax basis in the reinvested dividends. Your tax basis for the stock is now increased to $1,300. If you sell all the shares for $1,500, the taxable gain or income would be $200 ($1,500 - $1,300). If you record the cost basis as $1,000, you'll end up paying more taxes ($1,500 - $1,000 =$500).
    Frequently Asked Questions
    What are the new rules and how do they affect me?

    The legislation, enacted in October 2008 as part of the Emergency Economic Stabilization Act, requires the financial services industry to report to the IRS on Tax Form 1099-B cost basis of securities sold. In addition, the regulations require the reporting of the customer's adjusted basis in the securities and whether any gain or loss on the sale is short-term or long-term. These changes began to take effect beginning in 2011 and will be phased in through 2016 as follows, subject to any changes by the IRS. This applies to securities purchased on or after these dates (known as "covered securities"):

    Cost Basis Reporting Schedule by Phase and Effective Dates
    Phase Type of Security Security Acquisition Date Effective Tax Year Tax Form Mail Date
    1 Equities (Common, Preferred, and Foreign Stock)* and Exchange Traded Funds (ETFs) On or after
    01-01-11
    2011 2012
    2 Mutual Funds and Dividend Reinvestment Plan (DRIP) Shares On or after
    01-01-12
    2012 2013
    3 Less Complex Debt and Options (including warrants and rights) On or after
    01-01-14
    2014 2015
    4 Complex Debt and Options On or after
    01-01-16
    2016 2017
    *Some firms, including T. Rowe Price Brokerage, treat certain equity shares in a dividend reinvestment plan (DRIP) as covered beginning on or after January 1, 2012, while others may treat those shares as covered beginning on January 1, 2011.
    Accounts for which a tax Form 1099-B is not generated, such as IRAs and other retirement plans, generally are not affected by these changes.

    For more information about the rules, visit IRS Third Party Information Reporting.

    What is a "covered" or "noncovered" security? What is a "pre-effective" and "post-effective" security?

    A "covered" security, or "post-effective" security, is any security purchased according to this schedule: stocks and, for certain firms, DRIP shares purchased on or after January 1, 2011; mutual funds and, for T. Rowe Price Brokerage, DRIP shares purchased on or after January 1, 2012; less complex bonds and options purchased on or after January 1, 2014; and complex bonds and options purchased on or after January 1, 2016 These securities are known as post-effective securities, or covered securities, and are subject to the new cost basis reporting regulation. Securities purchased prior to these effective dates are known as pre-effective securities, or noncovered securities, and are not subject to the new cost basis reporting regulation.

    Cost basis information and reporting will not be retroactive to these noncovered shares. T. Rowe Price will not be responsible for reporting cost basis information to the IRS for noncovered or pre-effective securities. Cost basis information that you may receive today for noncovered securities will not change; what changes is the addition of tracking and reporting for covered securities to the IRS.

    Will T. Rowe Price provide cost basis information on trades made prior to January 1, 2012 (noncovered shares)?

    Mutual fund shares purchased prior to January 1, 2012 are noncovered securities. Cost basis information and reporting will not be retroactive for these noncovered securities. T. Rowe Price will not be responsible for reporting gain/loss information to the IRS for noncovered or pre-effective securities. Cost basis information that you receive today for noncovered securities will not change; what will change is the addition of tracking and reporting for covered securities to the IRS.

    What do I need to do if I want to use the Average Cost method on my mutual fund account?

    If you haven't made any changes to your method, then you don't have to do anything. Your mutual fund account will be defaulted to Average Cost.

    Will I be able to change my cost basis method? If so, when and how will I be able to change it?

    According to the new cost basis reporting regulation, you may elect a cost basis method at any time prior to the sale of the covered security. However, if you chose the average cost method for a particular mutual fund and wish to change that method, your change may be prospective (if you have already sold covered shares of that mutual fund) or retroactive (if you have not yet sold any covered shares of that mutual fund). You should consult your tax advisor on such change. The average cost method is available only for calculating cost basis on mutual fund shares and covered shares held in dividend reinvestment plans.

    For further information on tax matters, you may wish to call the Internal Revenue Service at 1-800-TAX-1040 (829-1040). To receive federal tax forms, call 1-800-TAX-FORM (829-3676) or visit the IRS website. Information on mutual fund tax matters is available in IRS Publication No. 550, and information on individual retirement accounts can be found in IRS Publication No. 590.

    How do I revoke Average Cost on my mutual fund account?

    You may revoke an Average Cost method election or default for previously purchased covered shares before the first sale of the covered shares. This revocation must be in writing, which can be accomplished through our online application or by mailing or faxing a Cost Basis Method Change form to us. If you make a redemption of covered shares, your right to revoke the method is terminated. Please note that if you are subject to the account service fee, the fee payment from a sale of shares in the account would constitute a redemption and terminate your right to revoke Average Cost for the account.

    What is a prospective change and how may I make this kind of change on my mutual fund account?

    You may change the Average Cost method election or default for covered shares you purchase in the future (prospectively) at any time. This change must be in writing, which can be accomplished through our online application or by mailing or faxing a Cost Basis Method Change form to us.

    Why did T. Rowe Price choose Average Cost as the default method for mutual fund accounts?

    T. Rowe Price currently provides Average Cost on sales of noncovered mutual fund shares for informational purposes. By choosing Average Cost as the default method, your account method can remain consistent with your current account information. Average Cost is one of the more popular cost basis methods for mutual funds and requires the least amount of recordkeeping by you or your tax advisor.

    Does T. Rowe Price have any information to send me on the new cost basis regulation, such as literature or IRS information?

    We don't have any literature to send you on the regulation. Here are some resources you may find helpful. For more information about the regulation, visit IRS Third Party Information Reporting.

    How is T. Rowe Price calculating my cost basis, including basis adjustment like return of capital, wash sales, etc.?

    A full explanation of cost basis calculation can be found in the article in the Tax Planning Center called Calculating Taxes on Mutual Fund Transactions.

    Can I convert from Average Cost-Single Category to FIFO or Specific Identification for my Noncovered T. Rowe Price mutual funds?

    For shares purchased prior to 2012, T. Rowe Price will not report cost basis information to the IRS for mutual funds. Clients may choose any method permissible under IRS regulations and are responsible for complying with IRS regulations in reporting mutual fund transactions on their tax returns. As a service, T. Rowe Price provides average cost basis information when possible. Beginning with the tax year of 2012, T. Rowe Price will begin to report to the IRS on Form 1099-B cost basis information on covered mutual fund shares sold. In conjunction with such reporting requirement, we accept written requests to change cost basis method in compliance with the IRS regulations. Access the T. Rowe Price forms to request your cost basis for covered and noncovered shares.

    The gain/loss amount on my 1099-B appears to be incorrect. Why is that?

    The 1099-B with gain/loss information is prepared for covered securities only. If your transaction includes the sale of covered and noncovered securities, you will not see the gain/loss information for the noncovered securities on Tax Form 1099-B. The gross proceeds (but not the gain/loss) for the sale of noncovered securities are reported on a separate section of Tax Form 1099-B.

    Moreover, the loss may be adjusted under the IRS 30-day wash-sale rule, which states that if you sell shares at a loss, your loss deduction will be deferred if you purchased other shares in the same or substantially identical security or mutual fund within 30 days before or after the sale. You should also note that we are only required to apply the wash-sale rule on an account-by-account basis, but you are required to apply such rule across all of your accounts. If you believe that the gain/loss amount is incorrect, please contact us.

    I have trading privileges on my spouse's account. Will I be able to select the cost basis method for trades?

    Yes. When trading authority has been granted to another person on your account, the authorized person has full privileges to buy or sell at their discretion on your behalf, including choosing a cost basis method.

    What do T. Rowe Price Brokerage customers need to do as part of the Cost Basis Reporting regulations?

    Brokerage customer responsibilities have not changed. You should continue to ensure that the correct cost basis information is reported on your tax returns. The information we provide on Form 1099-B can be different from what you are required to report on your tax returns because we are permitted, under the IRS cost basis regulations, to ignore certain complicated tax rules in determining your cost basis information, while you may have to take into account those rules. Please consult your tax advisor.

    Cost basis information and reporting is not retroactive for noncovered securities. T. Rowe Price will not report gain/loss information to the IRS for noncovered or pre-effective securities. Cost basis information for noncovered securities will not change; what will change is the addition of tracking and reporting for covered securities.

    For more information on Cost Basis FAQs for Brokerage Accounts.

    Can gifted or inherited securities be covered?

    Yes. If gifted or inherited securities were covered in the account of the donor or decedent, they remain covered upon receipt by the donee or heir. Covered securities transferred by gift or inheritance must be accompanied by a transfer statement that indicates that the gifted or inherited securities are covered securities. In the case of inherited securities, the transfer statement must also report the date of death and the stepped-up basis as of the date of death or as reported to the broker by the authorized representative of the estate. In the case of gifted securities, the transfer statement must include the donor's adjusted basis, the donor's original acquisition date, the date of the gift, and the fair market value of the gift on that date. The transferor is only required to compute the fair market value of the securities on the date of the gift if the value is readily ascertainable at the time of the transfer.

    Glossary

    Here are some terms that may be helpful in understanding the new regulations about cost basis.

    The New Regulations

    Affirmative Election of Average Cost – Taxpayer chooses the Average Cost method for his/her mutual fund account; taxpayer must elect Average Cost in writing or electronically.

    Average Cost – Method of calculating the cost basis of mutual funds by dividing the total cost of shares by the total number of shares owned in a fund. This number (the per share average cost basis) is then multiplied by the number of shares sold and compared to the actual sale amount to compute a gain or loss. Beginning in 2012, taxpayers who elect to use average cost will compute separate averages for fund shares held in different accounts. Taxpayers will be permitted to average the basis of mutual fund shares in one account but not average them in another account. Also, unless the fund or broker elects otherwise, taxpayers will compute a separate average for fund shares in an account that are covered securities and a separate average for fund shares in an account that are noncovered securities.

    Bond Amortization – As used here for cost basis reporting, bond amortization refers to the applicable tax accounting method that gradually and systematically reduces the discount or premium incurred in the acquisition of a bond over the remaining life of the bond (until the bond's maturity).

    Cost Basis (or Tax Basis or Basis) – The original purchase price or value of a security or mutual fund, including fees and commissions, and adjusted for stock splits, return of capital, and other applicable adjustments. Cost basis is used for income tax purposes to determine the capital gain or loss of the asset when it is sold or disposed. To calculate a gain or loss on the sale of a security, subtract the cost basis from the price at which you sold the security (sales proceeds):

    Sales Proceeds - (Original Value + Fees + Commissions + Corp. Actions + Other Applicable Adjustments) = Gain or Loss

    Cost Basis Method – A method for determining the shares and the cost of such shares associated with a sale to determine the gain or loss amount to be reported by a taxpayer.

    Covered Shares (Post-Effective Shares) – Shares acquired on or after IRS-designated effective dates (January 1, 2011, for equities - some exceptions may apply; January 1, 2012, for mutual funds, DRIPs, and certain exchange-traded funds (ETFs); January 1, 2014, for less complex bonds, options, and other applicable securities as defined by the IRS); and January 1, 2016, for complex bonds and options that are subject to cost basis reporting on Form 1099-B.

    Default Method – Cost basis method selected by the firm, which the firm may use to report covered shares if the shareholder does not elect a method; failure of taxpayer to notify a firm of an election of a method does not constitute an election of a method.

    Dividend Reinvestment Plan (DRIP) – An investment plan offered by a corporation or a broker allowing shareholders to automatically reinvest cash dividends and capital gains distributions in more shares of the same stock, often without commission, instead of receiving the distribution in cash.

    Form 1099-B – An IRS tax form provided by a broker or mutual fund company to the IRS and the client (payee) to report certain information on security transactions. The information from Form 1099-B may be used for preparing IRS Form 1040, Schedule D.

    IRS One-Year Rule – This rule states that that taxpayer is allowed to revoke default method by the earlier of either the 1st sale or 1 year after election or after being informed of default average cost. Financial firms may extend the one-year period. T. Rowe Price will not use the 1-year rule; T. Rowe Price permits revocation of the average cost method at any time as long as no sale of fund shares has occurred.

    Lot Depletion/Depletion Sequence – The order in which tax lots (shares) are sold or drawn down from an account, for example, the first shares purchased are the first shares to be depleted. When the Average Cost method is chosen, your shares are depleted on a FIFO basis.

    Noncovered Shares (Pre-Effective Shares) – Shares acquired prior to IRS-designated effective dates and shares without basis information.

    Prospective Change of Average Cost Election – If a taxpayer's account was defaulted to Average Cost for covered shares and a redemption has occurred, the taxpayer may choose a different method on the account for shares purchased after the redemption.

    Revocation of Average Cost Election – Taxpayer may change a defaulted or elected Average Cost method in writing or online to another method prior to the first sale or transfer of these covered shares. Making a redemption on covered shares terminates the right to revoke the method. The account service fee, assessed by share redemption, counts as a redemption. Taxpayer may change cost basis method on future purchases, no matter what cost basis method is chosen.

    General Terms

    Disallowed Loss – Loss from a security sale cannot be deducted on the tax return. This can result from a wash sale, which occurs if an investor sells shares at a loss and purchased other shares in the same or substantially identical security within 30 days before or after the sale.

    Fair Market Value (FMV) – Fair market value is generally the price that an asset would command on the open market or in an arm's length transaction.

    Gifted or Inherited Lot – A share or shares that were transferred as a gift or through an inheritance.

    Gift Transfer – The transfer of a security to another as a gift. If the stock has appreciated in value, the holder can avoid paying the capital gains tax by giving it as a gift. Gift tax, however, may apply.

    Long-Term Gain or Loss – Realized profit or loss on the sale of a security that has been held for more than one year.

    Short-Term Gain or Loss – Realized profit or loss on the sale of a security that has been held for one year or less.

    Tax Lot – Securities held in an investment portfolio identified by their dates of purchase and/or cost basis.

    Unknown Cost or Shares – Shares of a security within an account for which the broker does not know the cost or acquisition date. The security is then deemed noncovered, even if purchased after the effective date.

    Wash Sale Rule – Investor who sells shares at a loss may not claim the loss on his or her income tax return if the investor purchased other shares in the same or substantially identical security within 30 days before or after the sale.

    For further information on tax matters, you may wish to call the Internal Revenue Service at 1-800-TAX-1040 (829-1040). To receive federal tax forms, call 1-800-TAX-FORM (829-3676) or visit the IRS website. Information on individual retirement accounts can be found in IRS Publication No. 590.

    Internal Revenue Service Circular 230 Notice

    The information, including all linked pages and documents, on T. Rowe Price websites is not intended to be tax advice and cannot be used to avoid any tax penalties. You should consult your own tax advisor. Please see Legal Information for more details.

    Copyright 2014, T. Rowe Price Investment Services, Inc., Distributor. All rights reserved.