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A friend's Edward Jones financial advisor is using the Amount Invested and not the Cost Basis to compute the tax loss of selling a mutual fund.

I don't know anything about this stuff, but I'm pretty sure the financial advisor is wrong.

For tax purposes, do you always use the Cost Basis or the Amount Invested to compute the gain/loss?

UPDATE

Here are the definitions of the above terms directly from the Edward Jones website. It seems cut and dry that the Cost Basis should be used and that the Edward Jones financial advisor is wrong. But I am not educated in these matters, and I would hope they trained him effectively before making him a financial advisor.

Cost Basis is the amount paid for a security, including:

Commissions
Fees
Reinvested dividends and capital gains distributions (when applicable)
Original Issue Discount (OID)
Adjustments for sales of the security, principal returns, splits and spinoffs

Cost Basis is used to calculate the taxable gain or loss incurred when a security is sold. Cost basis figures provided by Edward Jones are believed to be reliable, but their accuracy and completeness cannot be guaranteed. Please consult with a tax advisor before using these numbers for tax purposes.

Amount Invested is the amount paid for a security, including:

Commissions
Fees
Systematic investments

Amount Invested keeps a running total of what you've invested in a security during the time it has been in your account, excluding reinvested dividends and capital gains distributions. It's a quick way to answer the question, "How much did I put in?" Amount Withdrawn shows how much of the investment has been sold, redeemed or transferred from your account. You should not use Amount Invested or Amount Withdrawn figures to report or prepare taxes.

The total amount invested/withdrawn may not equal the total amount of money deposited or withdrawn from the account. Amount Invested should not be used to determine overall account level performance since it represents securities that are currently in the account, and does not include any previously held securities. For more information on your overall account performance, please contact your financial advisor.

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    Might also help if you specify what you mean by "cost basis" and "amount invested". I have a feeling the answer depends on the precise definition used, so it would be good to make sure that you're using them the same way as the people who will answer the question. – user32479 Dec 16 '15 at 2:13
  • @Brick I will update the question above with that information. – RockPaperLizard Dec 16 '15 at 5:33
  • Does it make a difference in your friend's case which of these is used. For some (but not all) investments Cost Basis = Amount Invested according to these definitions. – user32479 Dec 18 '15 at 6:33
  • @Brick Yes, the difference for them is over 300%! – RockPaperLizard Dec 18 '15 at 8:10
  • Amount invested never goes down if you sell - it is missing the "Adjustments for sales of the security" piece. Of course a real tax professional would need to answer; I'm not one of those. – Ross Aug 17 '16 at 13:19
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I am not a tax professional, only an investment professional, so please take the following with a grain of salt and simply as informational guidance, not a personal recommendation or solicitation to buy/sell any security or as personal tax or investment advice. As Ross mentioned, you need to consult a tax advisor for a final answer concerning your friend's personal circumstances.

In my experience advising hundreds of clients (and working directly with their tax advisors) the cost basis is used to calculate tax gain or loss on ordinary investments in the US. It appears to me that the Edward Jones description is correct. This has also been the case for me personally in the US with a variety of securities--stocks, options, futures, bonds, mutual funds, and exchange traded funds.

From the IRS: https://www.irs.gov/uac/about-form-1099b

Form 1099-B, Proceeds From Broker and Barter Exchange Transactions A broker or barter exchange must file this form for each person:

  • For whom, they sold stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, securities futures contracts, etc., for cash,
  • Who received cash, stock, or other property from a corporation that the broker knows or has reason to know has had its stock acquired in an acquisition of control or had a substantial change in capital structure reportable on Form 8806, or
  • Who exchanged property or services through a barter exchange.

Edward Jones should be able to produce a 1099b documenting the gains/losses of any investments. If the 1099b document is confusing, they might have a gain/loss report that more clearly delineates proceeds, capital returns, dividends, and other items related to the purchase and sale of securities.

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