A NetBasis cost basis report is a $35 per-security document that reconstructs the adjusted cost basis of a stock when you don’t have reliable records of the original purchase price and every adjustment since. You use it to report the correct gain or loss when you sell a “noncovered” security, meaning one your broker isn’t required to report basis for on Form 1099-B. The report is worth buying whenever you’re selling pre-2011 stock that went through spin-offs, mergers, or splits, shares accumulated through decades of a dividend reinvestment plan, or inherited securities where nobody documented fair market value at the date of death.
When You Actually Need One
The trigger is almost always the same: you’re selling a security and the cost basis box on your 1099-B is blank or marked as not reported to the IRS. That happens with noncovered securities, and brokers have no obligation to get the basis right on those shares even if a figure appears on your statement for informational purposes.
A few situations push investors toward NetBasis more than others.
Long-held individual stocks are the classic case. A share bought in 1985 may have gone through three splits, a spin-off, two mergers, and fifteen years of reinvested dividends before you sell it. The original confirmation is gone, the brokerage may have been acquired twice, and digital archives rarely reach that far back.
Dividend reinvestment plans create a different kind of mess. Every quarterly reinvestment is a separate purchase at a different price. A 20-year DRIP position can have 80 or more individual lots, each with its own acquisition date and cost, and selling the whole position means calculating gain or loss on every lot. Any lot acquired before the covered-security date is noncovered.
Inherited stock generally gets a stepped-up basis equal to fair market value on the decedent’s date of death (or an alternate valuation date up to six months later if the executor made that election on the estate tax return). The step-up rule isn’t the hard part. Proving the fair market value is, especially when the decedent held the stock through corporate actions that changed the share count before death. If you received a Schedule A to Form 8971 from the executor, the basis you report must be consistent with the value shown there, and reporting a basis that exceeds the final estate tax value can trigger an accuracy-related penalty.
Non-taxable spin-offs catch investors by surprise. When a parent company distributes subsidiary shares, your original basis in the parent has to be split between the parent and the new subsidiary based on their relative fair market values on the distribution date. Statements for noncovered shares often show the new subsidiary with a zero or unknown basis, and selling at that figure means paying tax on the full proceeds as if everything were profit.
Cash-and-stock mergers are similarly tricky. The cash portion may be taxable while the stock portion qualifies for tax-deferred treatment, and the remaining basis has to be allocated to the new shares under the specific terms in the merger agreement and proxy statement.
Wash sales add their own adjustments. A disallowed loss on a sale followed by repurchase of a substantially identical security within 30 days gets added to the basis of the replacement shares, and tracking that across years of trading is the kind of problem manual reconstruction rarely solves cleanly.
What “Noncovered” Means
Brokers must report cost basis to the IRS on Form 1099-B only for covered securities. The coverage dates vary by security type:
- Stocks purchased for cash: covered if acquired after 2010.
- Mutual fund shares and stocks eligible for average basis: covered if acquired after 2011.
- Most debt instruments and options: covered if acquired after 2013.
- More complex instruments like convertible bonds and contingent payment debt instruments: covered if acquired after 2015.
Anything purchased before those dates is noncovered. The broker reports your sale proceeds but leaves the basis for you to figure out and report.
How the Report Is Built
NetBasis maintains a database of historical market prices, corporate actions, SEC filings, and proxy statements. You provide the security name or ticker, the purchase date, the number of shares acquired, and the sale date. The software identifies every corporate event between those dates and applies each adjustment in sequence.
For mergers, it pulls the original proxy statement and registration filing to determine how much of the transaction was taxable versus tax-deferred, then allocates your pre-merger basis accordingly, accounting for any taxable boot received in the exchange. For reinvested dividends, it can trace payment dates and reinvestment prices to rebuild the lot-by-lot history when your own records are incomplete.
The final report shows the original purchase price, lists every corporate action applied chronologically, and arrives at an adjusted cost basis figure. That number is what you plug into your tax return.
How to Use It on Your Return
You report the sale of a noncovered security on IRS Form 8949. Because the broker did not report your basis to the IRS, you check Box B for short-term sales or Box E for long-term sales. Enter the adjusted cost basis from the NetBasis report in column (e). The resulting gain or loss flows from Form 8949 to Schedule D.
If you leave the basis blank or report zero because you lack records, the IRS treats the entire sale proceeds as taxable gain. That’s legal, but on a position held for decades it almost certainly overstates what you owe by a significant margin.
What It Costs and Whether You Can Deduct It
NetBasis charges $35 per report, with each report covering one security. Many large brokerages license the technology and offer it to clients directly, sometimes at a reduced cost or bundled with other services.
The fee is not deductible on your federal return. The Tax Cuts and Jobs Act suspended the deduction for miscellaneous itemized expenses, including investment-related costs, starting in 2018, and that suspension has since been made permanent. There is no federal deduction available for cost basis reconstruction fees regardless of the amount.
When NetBasis Can’t Help
The database isn’t infinite. If the company was small, delisted decades ago, or involved in obscure corporate transactions, the software may not have the historical data it needs. At that point you’re into manual reconstruction.
Start by asking the brokerage for the full transaction history for the account, including data that may not appear on the online portal. If the brokerage has changed hands, the successor firm may still have archived records. Old account statements, trade confirmations, and tax returns showing dividend income can all help piece things together.
When records are genuinely unavailable, the IRS expects a reasonable reconstruction effort documented well enough to survive scrutiny. Historical stock price databases, old annual reports, and dividend payment records can provide supporting evidence. Document every assumption and source. A CPA experienced with securities can do this work, though manual reconstruction at professional hourly rates (commonly several hundred dollars per hour) runs far above the automated report.
Reporting a basis of zero is always available as a last resort. It’s the most conservative approach and eliminates any risk of underreporting, but on a stock held for 30 years that appreciated substantially from a meaningful original investment, the tax difference between zero and the actual basis can be enormous.
How Long to Keep It
Keep the report and any supporting documentation for at least three years after you file the return reporting the sale. That’s the standard IRS audit window. If you underreport income by more than 25% of the gross income shown on the return, the window extends to six years. If you never file a return, there’s no expiration at all.
The IRS specifically advises keeping cost basis records until the statute of limitations expires for the year you sold the asset. Holding onto the report indefinitely costs nothing and removes any risk of being unable to substantiate your basis later.