Cost Basis Reporting Options
Correctly determining the cost basis of your shares is essential for properly calculating your capital gain or loss on your federal income tax return. Cost basis reporting regulations require mutual funds to report cost basis information to shareholders and the IRS. Read more to learn about cost basis reporting and find out how these regulations impact you.
Cost Basis Reporting Changes
Cost basis is defined as the price you pay for an asset. It is used to determine the amount of gain or loss you will realize if you sell the asset. If a gain is realized, you may owe federal and state income taxes. If a loss is realized, you may be able to deduct the loss on your income tax return. Within State Farm Mutual Funds®, cost basis reporting applies only to covered shares of non-tax qualified accounts including:
The Economic Stabilization Legislation, signed into law in October of 2008, requires mutual funds to report cost basis information to shareholders and the IRS beginning January 1, 2012.
- These requirements apply to non-tax qualified mutual fund shares acquired on or after January 1, 2012, (covered shares) and which are subsequently sold.
- Cost basis is reported to you and the IRS on tax form 1099-B, which will be mailed to you in January if you sold covered shares from a non-tax qualified account.
When opening a new account, you have the option to choose from the following seven cost basis accounting methods:
- Average Cost – The amount paid for all shares is divided by the total number of shares acquired, resulting in an "average" price per share.
- First In First Out (FIFO) – The cost of each share (or share lot) is tracked and the first shares purchased are the first shares deemed sold.
- Last In First Out (LIFO) – The cost of each share (or share lot) is tracked and the last shares purchased are the first shares deemed sold.
- High Cost First Out (HIFO) – The cost of each share (or share lot) is tracked and the shares with the highest cost are deemed sold first.
- Low Cost First Out (LOFO) – The cost of each share (or share lot) is tracked and the shares with the lowest cost are deemed sold first.
- Loss/Gain Utilization (LGUT) – The cost of each share (or share lot) is tracked and shares that will yield a loss are deemed sold first (short-term then long-term), then shares that will yield a gain are deemed sold (long-term then short-term).
- Specific Lot Identification (SLID) – At the time of sale, the customer selects which shares (or lots) will be sold.
If you do not choose one of the methods above, the average cost method will be used.
When you open a new non-tax qualified account, you will need to select a cost basis method. If you do not select a method, the average cost method will be used.
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Each State Farm LifePath Fund invests all of its assets in a corresponding LifePath Master Portfolio under a master/feeder structure. BlackRock Fund Advisors ("BFA") is the investment advisor to the LifePath Master Portfolio. State Farm Investment Management Corp. (SFIMC) is the investment advisor to the State Farm LifePath Funds. State Farm VP Management Corp. (SFVPMC) is the distributor of the State Farm LifePath Funds. Neither SFIMC nor SFVPMC are affiliated with BFA or its affiliates.
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The Russell 2000® Index tracks the common stock performance of the 2,000 smallest U.S. companies in the Russell 3000 Index.
The Russell 2500 Index measures the performance of the 2,500 smallest securities in the Russell 3000 Index.
The Russell 1000 Index is a market-capitalization weighted index that tracks the largest 1,000 companies in the Russell 3000 Index.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity market and is a subset of the Russell 1000 Index.
The Dow Jones Industrial Average is an unmanaged average of 30 actively traded stocks.
The NASDAQ Composite is an unmanaged market capitalization weighted index that is designed to represent the performance of the National Market System.
The S&P 500® Index tracks the common stock performance of 500 large U.S. companies.
The Barclays 1-5 Year U.S. Treasury Index measures the performance of short-term U.S. Treasury Securities maturing within one to five years.
The Barclays U.S. Aggregate Bond Index represents debt securities in the U.S. investment grade fixed rate taxable bond market.
The Barclays Municipal Bond Index is an unmanaged index representative of the tax-exempt bond market.
The Barclays High-Yield Bond Index covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
The Barclays U.S. TIPS Index is an unmanaged index composed of inflation protected securities issued by the U.S. Treasury.
The Citigroup 3-Month Treasury Bill Index is an unmanaged index of three-month Treasury bills.
The FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index is designed to measure the stock performance of companies engaged in specific real estate activities of the real estate markets outside of the United States.
The FTSE EPRA/NAREIT Developed Real Estate Index is designed to measure the stock performance of companies engaged in specific real estate activities of the North American, European, and Asian real estate markets.
The Morgan Stanley Capital International Europe, Australasia and Far East Free (EAFE® Free) Index currently measures the performance of stock markets of Europe, Australia, New Zealand, and the Far East.
The MSCI All Country World Index (ACWI) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
The MSCI All Country World Index (ex-U.S.) (MSCI ACWI ex-U.S. Index) is a free float-adjusted market capitalization index that is designed to measure equity market performance in global developed and emerging markets, excluding the United States.
The MSCI Emerging Markets Index is a float-adjusted market capitalization index designed to measure equity market performance in global emerging markets.
The Credit Suisse High Yield Index is designed to mirror the investible universe of the U.S. dollar-denominated high yield debt market.
The New York Stock Exchange is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities.
The Nikkei 225 Index is a price-weighted index comprised of Japan's top 225 blue–chip companies on the Tokyo Stock Exchange.
The Blended Benchmark for the Equity and Bond Fund is a combination of 60% of the S&P 500 Index and 40% of the Barclays U.S. Aggregate Bond Index, rebalanced monthly.
The Blended Benchmark for the LifePath Funds is a combination of the holdings in the Barclays U.S. Aggregate Bond Index, Russell 1000 Index, Russell 2000 Index, MSCI ACWI ex-U.S. IMI Index, Dow Jones-UBS Commodity Index, FTSE EPRA/NAREIT Developed Real Estate Index and Barclays U.S. TIPS Index. The weightings of the indices are adjusted quarterly to reflect the funds' changing asset allocations over time.
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