Reporting for Fixed-Income and Option Securities
The complexity of a fixed-income security determines the date on which that product becomes covered by the cost basis reporting regulations. Any taxable or non-taxable bond that has a fixed rate, fixed payment schedule and fixed maturity is considered to be less complex.
The table below explains which types of fixed-income products are less complex versus more complex, and when each product becomes covered.
Jan. 1, 2014, Less-Complex Fixed-Income*:
- Treasury notes and bonds
- Fixed-rate corporate bonds
- Fixed-rate municipal bonds
Jan. 1, 2016, More-Complex Fixed-Income:
- Variable-rate bonds
- Stepped-rate bonds
- Convertible bonds
- Stripped bonds
- Inflation-indexed fixed-income securities
- Certain tax credit bonds
- Contingent payment bonds
- Payment-in-kind bonds
- Foreign-issued bonds or any bonds that pay in foreign currency
- Fixed-income securities issued as part of an investment unit
- Fixed-income securities not held by a brokerage or clearing agent (physical certificates)
- Fixed-income securities with terms that are not available to brokers within 90 days of client acquisition
Fixed Income Exclusions
The following types of securities are excluded from the cost basis reporting regulations:
- Fixed-income products with payments subject to acceleration (certain MBS, ABS and/or REMIC regular interests)
- Short-term fixed-income securities (those with a maturity date equal to or less than one year after the date of issue)
The majority of options became covered on Jan. 1, 2014; and any option, warrant or stock right issued in combination with a fixed-income security became covered on Jan. 1, 2016.
The list below explains when each type of option will be covered in greater detail.
Jan. 1, 2014:
- Options on a single security
- Options on more than one specified security (including an index made up of components that include covered securities)
- Warrants or stock rights
- Options on financial attributes, such as interest rates or dividend yields
Jan. 1, 2016:
- Investment units in which options, warrants or stock rights are issued in combination with a fixed-income security
The following types of option securities are excluded from the cost basis reporting regulations:
- Incentive stock options
- Foreign currency options
- Commodity options
*Includes debt instrument with an embedded put or call option
Scottrade does not provide tax advice and the information contained in this article is not meant as a replacement for professional advice. Some of the information could vary depending on State law and your individual situation. Please consult your tax, or legal, advisor for questions concerning your personal tax or financial situation.
Bonds involve risks including, but not limited to interest rate risk, reinvestment risk, inflation risk, call risk, liquidity risk and a risk of loss of principal. New issue offerings are sold by prospectus or offering circular available at www.scottrade.com. Investors should read these carefully.
Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in the Scottrade Options Application and Agreement, Brokerage Account Agreement, and by downloading the Characteristics and Risks of Standardized Options and Supplements (PDF) from The Options Clearing Corporation, or by requesting a copy from your local branch office. Market volatility, volume, and system availability may impact account access and trade execution. Supporting documentation for any claims will be supplied upon request. Consult with your tax advisor for information on how taxes may affect the outcome of these strategies. Keep in mind profit will be reduced or loss worsened, as applicable, by the deduction of commissions and fees.