Cost basis determines the capital gains or losses reported on your tax documents following the sale of a security. This guide explains how cost basis works, which calculation methods M1 uses, how account actions and events can affect your basis, and what to do if you notice missing or incorrect cost basis information.
What is cost basis?
Cost basis is the total price you paid to purchase a security, including fees. It is used to calculate your capital gain or loss when you sell.
Capital gains and losses
When you sell an investment, the difference between your sale price and your cost basis is a capital gain or loss.
Example:
Buy 10 shares at $10 = $100 cost basis
Sell 10 shares at $15 = $150 proceeds
$50 capital gain ($150 - $100)
Short-Term vs. Long-Term
Short-term gain/loss: Sold after holding for 1 year or less
Long-term gain/loss: Sold after holding for more than 1 year
Long term capital gains are generally taxed at a lower rate than short term capital gains, which are typically taxed at your top marginal tax rate.
Wash Sales
A wash sale happens if you sell a security for a loss and the same, or substantially similar, security is repurchased within 30 days.
Impact:
The loss that was incurred from the sale is disallowed and you are unable to claim the loss when filing your tax return.
The disallowed loss is added to the cost basis of your newly purchased shares.
Corporate Actions and Dividends
While a corporate action will rarely cause your total cost basis to change, it’s possible you will see a change in the security’s cost per share. Common types of corporate actions and their expected cost per share impact are listed below:
Stock Splits
Forward split: You get more shares; cost per share goes down, total basis stays the same.
Reverse split: Fewer shares; cost per share goes up, total basis stays the same.
Mergers and Acquisitions
Your basis may be split across new shares or partial cash payments.
Each merger or acquisition can affect cost basis differently.
If you’re unsure about a corporate action, contact M1 Client Success.
Symbol or Name Change
Price per share typically stays the same unless part of a merger or acquisition.
Dividends and Dividend Reinvestment (DRIP)
Cash dividends do not affect cost basis.
Reinvested dividends add to your cost basis by the amount reinvested.
Updating or missing cost basis records
Your cost basis might be missing for these reasons:
After account transfer: It can take up to 30 days after a brokerage transfer for previous cost basis data to appear in your M1 account.
Records not automatically sent: After 30 days, M1 may not have received your cost basis from your old brokerage. Request that your old brokerage send your basis information directly to M1.
Uncovered securities: Stocks bought before 2011, or ETFs/mutual funds before 2012, may not have cost basis records. You may need to provide your original records.
If you provide cost basis documentation, M1 can update your account. This usually takes 1–2 weeks; during tax season it may take longer.
M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
This content was generated using artificial intelligence and is intended for informational and educational purposes only. While reasonable efforts are made to ensure accuracy, AI-generated outputs may omit key context; and should not be construed as financial, investment, legal, or tax advice. Users should independently verify all information and consult a qualified professional before making any financial decisions.
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