Form 1099-B and cost basis information

As part of the Energy Improvement and Extension Act of 2008, mutual fund companies are required to report your cost basis information on IRS Form 1099-B for shares that are acquired and subsequently redeemed on or after Jan. 1, 2012. To learn more about the regulations, visit the Invesco Tax Center at invesco.com/us and click Mandatory Cost Basis Information

The form design incorporates IRS requirements, including grouping transactions by fund, type of gain/loss, and, for some boxes, total information.

Each redemption reported may include up to five groupings.  Redemption proceeds, redemption date, and shares sold are always reported to the IRS for each group.  Cost basis is reported for each group as follows:

1. Short-term— Covered shares (cost basis will be reported to both the shareholder and the IRS)

2. Short-term — Noncovered shares (cost basis will be reported to the shareholder, if available, and not reported to the IRS)

3. Long-term — Covered shares (cost basis will be reported to both the shareholder and the IRS)

4. Long-term — Noncovered shares (cost basis will be reported to the shareholder, if available, and not reported to the IRS)

5. Unknown shares — No cost basis will be provided to the shareholder or IRS

Many factors can prevent Invesco from providing cost basis information. If your account was originally an Invesco account opened before 1993, or the account received a transfer from an account ineligible for cost basis, then we are unable to provide cost basis information. This information is provided for your convenience in calculating gains or losses. You are not required to use the cost basis information we have provided to calculate gains or losses.

With this method, an average cost for all shares of a fund is calculated and maintained as separate amounts for your covered and noncovered shares.

A redemption may generate short- and/or long-term gains, or losses for both covered and noncovered shares since multiple purchases may be depleted by one transaction.

The following steps are used to calculate an average cost per share:

1. Add up the total dollars that were used to purchase all of the shares currently owned.

2. Divide the results of step 1 by the number of shares currently owned. This yields an average basis per share.

3. Multiply the results of step 2 by the number of shares sold. This figure is the basis of the shares being sold.

Example: A shareholder redeems 50 shares of ABC Fund on Aug. 25, 2014, at a price of $17 per share. He has made two investments and had one capital gain reinvestment. His account information is as follows:

Trade date      Transaction       Price per share  Number of shares

01/03/10         Purchase           $10                      100 shares

12/15/10          Capital gain      $12                       10 shares

01/02/11          Purchase           $14                      100 shares

08/25/2014     Redemption     $14                       50 shares

4. Find the shareholder's total cost by adding up all purchases (dividend and capital gain reinvestments included).

Total cost ($)

$10 x 100 = $1,000

$12 x 10 = $120

$14 x 100 = $1,400

Total: $2,520

5. Divide the total cost by the number of shares owned.

Average basis per share

100 + 10 + 100 = 210

($2,520 / 210 shares) = $12

6. Multiply the average basis per share by the number of shares sold.

Basis of shares sold

($12 x 50 shares) = $600

We can see that the shareholder's cost using the average cost basis method is $600.

From here, it's just a simple calculation to find the taxable gain/loss.

Redemption proceeds

$17 x 50 shares sold $850

Average cost $600

Taxable gain $250

Because the Average Cost Method depletes shares on a first-in, first-out basis, we know that these shares were redeemed from the oldest purchase (lot) on Jan. 3, 2010. Since the redemption was placed on Aug. 25, 2014, we can conclude that the shareholder has incurred a long-term capital gain of $250.

Note: Although it may seem that the shareholder is taxed on reinvested dividends and capital gains for the year in which they were distributed as well as at the time the shares are redeemed, he/she is not double-taxed on the assets. Because the IRS considers the reinvested dividends and capital gains income, the shareholder is taxed on them for the year in which they were distributed. In addition, at the time the shares are redeemed, the shareholder may be taxed on the gain resulting from the sell. The reinvested dividends and capital gains increase the shareholder's tax basis on the shares sold, thereby avoiding double taxation.

1. First-in, first-out (FIFO). Shares are sold in the order in which they were purchased — the oldest shares are sold first, and so on.

2. Specific identification. You specify which shares are to be sold first. This method can result in the lowest capital gain and the highest capital loss.

3. High-cost (HIFO). Shares with the highest adjusted cost basis are sold first.

4. Last-in, first-out (LIFO). Shares of the fund are sold in the opposite order that they were acquired. The shares that were acquired most recently will be sold first.

5. Low-cost (LOFO). Shares with the lowest adjusted cost basis are sold first.

6. Loss/gain utilization. Evaluates losses per share and gains per share, and then strategically selects lots based on that loss/gain in conjunction with the holding period. This method will deplete shares with losses before gains. For shares that yield a loss, shares owned one year or less (short-term) will be depleted ahead of shares owned more than one year (long-term). For gains, long-term shares will be depleted ahead of short-term gains. With favorable long-term gains rates, long-term gains are given priority over short-term gains to reduce taxes assessed.

Please consult your tax advisor to determine which cost basis calculation method is most advantageous for your tax situation.

If you use the redemption proceeds provided on Form 1099-B, your CDSC has already reduced your redemption proceeds. Therefore, there is no need to adjust your cost basis.

State and local calculations of capital gains (losses) are usually the same as the federal calculations. However, your state or locality may have special rules that result in a different amount or treatment of gains (losses). To determine whether an adjustment is necessary, please read your state and local income tax form instructions or consult your tax advisor.

If you sell shares at a loss and purchase any shares of the same fund within 30 days before, after, or on the day of that sale, this is known as a wash sale. Tax regulations defer deduction of a loss on the sale to prevent investors from realizing losses solely to offset capital gains. The loss is added to the basis of the replacement shares purchased. The amount of the disallowed loss has been deducted from the amount shown in the net capital gain (loss) column for each transaction qualifying as a wash sale. Reinvested dividend and capital gain distributions are considered purchases by the IRS and are therefore capable of creating a wash sale.

It reduces the cost basis. For example, if your cost basis for shares of a fund is $10 per share and you have received a return of capital of $0.50 per share, your cost basis is reduced to $9.50 per share.

Normally, the amount of sales load paid when purchasing shares of a fund is added to the basis amount of the shares purchased. However, if you redeem the shares within 90 days after the date of purchase and acquire additional shares in the same fund or exchange into another fund under a reinstatement right, this may not be the case. The sales load may need to be deferred and added to the cost basis of the subsequently acquired shares. This cost basis statement does make the adjustment for you. Please consult your tax advisor regarding the effect this transaction may have on the average cost for this and subsequent transactions.

No. The cost basis “lots” of your account will be adjusted to correlate with the stock dividend. However, there is no effect on your overall cost basis or your gain/loss calculation. The example below shows cost basis information on a redemption without a stock dividend and on the same redemption with a stock dividend.

A fund merger does not lower or raise your cost basis. After the merger is completed, the accounts are adjusted to reflect the new pricing without affecting your cost basis.