After Congress required brokers to report cost basis to the IRS on many equity and fund sales, lots split into covered and noncovered categories. On a covered lot, Fidelity, Vanguard, Schwab, E*TRADE, or similar usually send both proceeds and basis on Form 1099-B. On a noncovered lot—often older purchases or certain transfers—the broker may report proceeds only, and you still must put the correct basis on Form 8949. Account shell: Taxable brokerage account basics. Adjustment mechanics: 1099-B basis adjustment basics. Codes when you disagree with a box: Form 8949 adjustment codes basics.
Filing orientation: Filing taxes for beginners.
What “covered” vs “noncovered” usually means
| Label on 1099-B / statement | Typical meaning | Your filing cue |
|---|---|---|
| Covered | Broker reports basis (and often acquisition date / gain type) to the IRS | Match Form 8949 to the 1099-B; adjust only when you have a documented reason |
| Noncovered | Broker often reports proceeds; basis may be blank or “not reported to IRS” | You still report correct basis from confirms, transfer statements, or prior 1099-Bs |
| Transferred lot | Prior broker or transfer agent may not have sent full basis | Reconstruct before you e-file; do not invent |
| Mutual-fund average cost | Many funds use average-cost elections for covered shares | See Average-cost basis for mutual funds |
IRS phased reporting by asset type and acquisition date (stocks, then mutual funds / DRIP shares, then certain more complex instruments). Exact cutoffs are technical; your broker’s tax FAQ and the year’s Form 1099-B instructions are the live source—not a blog table. The practical consumer takeaway: covered does not mean “the IRS already filed for you,” and noncovered does not mean “skip the gain.”
Why the cutoff still trips people up
- Old lots. Shares bought before the reporting start date for that asset class often remain noncovered even at a modern Schwab or Fidelity login.
- ACATS / transfer-in. Moving an account does not magically create perfect basis if the sending firm never transmitted it.
- Employer stock and ESPP/RSU. Compensation income on a W-2 and capital gain on a 1099-B can both appear; basis rules are easy to double-count.
- Lot method. FIFO vs specific ID changes which lot sells (Tax lot identification basics); covered status follows the lot, not your nickname for the position.
- Wash sales and adjustments. Even covered lots can need Form 8949 codes when the broker missed a repurchase elsewhere.
Worked example: covered ETF vs old stock lot
Casey holds two positions in a taxable Schwab account:
- 200 shares of ETF VTI bought in 2019 (covered). Casey sells half in 2025. Schwab’s 1099-B shows proceeds, basis, and long-term holding. Casey’s Form 8949 should match unless Casey documents a wash-sale or basis correction.
- 50 shares of a single stock bought in 2008 and transferred from an old E*TRADE login (noncovered). Casey sells all 50 in 2025. Schwab reports proceeds and may show basis as not reported to the IRS. Casey must reconstruct the 2008 cost from old confirms or prior statements—say $2,000 cost against $7,500 proceeds → about $5,500 long-term gain—then enter that on Form 8949. Leaving basis blank or at $0 overstates the gain and overpays tax; inventing a higher basis without records understates it.
Same return, two rules: trust the covered boxes after a sanity check; own the noncovered math.
Practical habits
- Before year-end, export the broker’s cost-basis / tax lots report and flag any “unknown” or noncovered lines.
- Download historical confirms when you still can—firms purge older PDFs.
- For transfers, ask both brokers for a cost-basis transfer report in writing.
- Turn on specific-lot identification early if you care which covered lot sells.
- Reconcile corrected 1099-Bs (common into February–March) before you lock the return.
Checklist
- Separate covered and noncovered lots on every 1099-B.
- Reconstruct noncovered basis from confirms—do not leave $0 by default.
- Match covered lines to Form 8949; use adjustment codes only with a documented reason.
- Track transferred and employer-stock lots separately from plain brokerage buys.
- Keep lot worksheets with the filed return PDF for several years.
- Ask a CPA when corporate actions or multi-broker wash sales muddy covered status.
DRIP and reinvested-dividend lot tracking: DRIP cost basis basics. Wash-sale adjustments that sit on top of covered reporting: 1099-B basis adjustment basics.
Educational only. Not tax, legal, or investment advice. Covered/noncovered cutoffs, Form 1099-B boxes, and Form 8949 rules are technical and year-specific; verify with current IRS publications, your broker’s tax documents, and a qualified tax professional.