What Are Non Covered Securities

If your brokerage statement or Form 1099-B shows a box for “Noncovered Security,” it usually means one thing: the broker may not send the IRS the cost basis for that sale. When the IRS doesn’t get basis information from your broker, you generally have to figure it out yourself for your tax return.

That’s the basic idea behind “covered vs. noncovered.” It’s less about whether you owe tax (you often still do) and more about who reports what—your broker, or you.

What “noncovered security” means

A noncovered security is an SEC designation where the broker’s cost-basis reporting to the IRS may not apply for certain trades.

So when you see the noncovered label, it usually means:

• Your broker might still report the sale.
• But the broker may not report the basis (what you paid, plus certain adjustments) for that specific transaction.
• Because of that, your tax return can’t rely on the broker’s cost-basis numbers.

The label can also depend on timing. A transaction that happens before the applicable effective date can be treated as noncovered, which is why basis may be missing on your Form 1099-B.

Covered vs. noncovered securities: the core difference

Here’s the simplest comparison:

• Covered securities: your broker may report cost basis to the IRS.
• Noncovered securities: your broker may not report cost basis to the IRS.

Why does that matter? Cost basis is used to figure out your capital gain or loss. If your broker doesn’t provide a basis figure (or doesn’t send it to the IRS), you need to use your own records.

A key point: noncovered doesn’t mean “tax-free”

A noncovered sale can still be taxable. The label is about reporting, not about whether taxable income exists. Even if the box says noncovered, you still calculate gain or loss using the right basis method for your situation.

Why acquisition date matters

Sometimes the covered vs. noncovered label depends on when you acquired the security and the effective date of the basis-reporting rules that apply to that type of asset.

A lot of explanations use examples like these:

• Securities acquired before January 1, 2011 are identified as noncovered in one example.
• Securities acquired before January 1, 2012 are identified as noncovered in another example.

But the main takeaway isn’t a single cutoff date that fits everything. Different assets (and sometimes different reporting categories) can have different effective dates, so use the acquisition date as a clue—not a universal rule.

Practical way to think about it

When you’re looking at a noncovered trade, ask two questions:

1. What did the broker label it as (Covered or Noncovered on the 1099-B details)?
2. When did you acquire it, and how does that line up with the effective-date concept for that asset type?

If your acquisition date is earlier than the applicable reporting change, it’s more likely the broker treats the sale as noncovered and omits cost-basis reporting.

What the noncovered label means on Form 1099-B

On Form 1099-B, you may see a box labeled “Noncovered Security.” When it’s checked, it generally means the transaction is one where the cost basis may not be reported to the IRS.

That affects you in a practical way:

• Don’t assume you can copy a basis number from the 1099-B.
• You may need to pull basis from:
• your own trade confirmations,
• older account records,
• or other documents that show what you paid or your adjusted cost.

If basis is missing, don’t panic—rebuild it

A noncovered label often means the form doesn’t include the basis you need. It doesn’t automatically mean you can skip the calculation. It means you have to use the right cost basis from your records.

Examples of securities that may be noncovered

You’ll commonly see noncovered labels in situations that fall into “basis reporting not in place yet,” or for certain lots where the broker doesn’t supply basis.

Here are examples that show up in the kinds of explanations people use to recognize why a broker might label something noncovered:

Older shares

If you bought shares a long time ago—before the applicable basis reporting effective date—the sale may show as noncovered because the broker may not report the basis.

RSUs (restricted stock units)

RSUs can create confusion because there are different “when” dates involved: when you received the stock (through the grant/vesting process) and when you later sold it. In cases like this, the 1099-B can show missing or unclear basis details, which can lead to a noncovered label. (That said, RSUs aren’t automatically noncovered—the label depends on how your specific situation lines up with the broker’s reporting.)

Securities affected by different effective dates

Even if two holdings look similar, one trade might fall on one side of an acquisition-date cutoff tied to reporting changes, while the other falls on the other side. That can lead to one trade being labeled covered and another being labeled noncovered.

How cost basis works when the broker does not report it

When a transaction is marked noncovered, your broker may not provide basis to the IRS. Your tax return still needs gain or loss, so you’ll need:

• Proceeds from the sale (often still shown),
• Cost basis for what you sold (often not shown, or not usable as-is),
• Any adjustments required under the rules that apply to that security.

How to calculate cost basis for noncovered securities

Use your own records to figure out your basis. In practice, that can include:

• pulling the purchase price from older confirmations for stock you bought,
• using documents tied to the grant or vesting event for equity compensation like RSUs,
• reconstructing lot-level details when the 1099-B doesn’t give you what you need.

The challenging part usually isn’t the math. It’s getting the correct basis number for the specific shares that were sold.

Keep your lot details straight

Many brokers track lots, sometimes with different purchase dates. If the 1099-B doesn’t provide basis because of the noncovered label, you may need to determine which lots were sold and what basis those lots have.

If you sold shares in multiple batches, choosing the wrong lot (even by accident) can throw off your gain or loss.

Where noncovered sales fit into tax-return reporting

Think of the 1099-B as a transaction report, not the final answer.

When you report a sale tied to a noncovered security:

• You generally report it as you would any other capital transaction.
• But since basis may be missing on the 1099-B, you use your own calculated cost basis to compute gain or loss.

Don’t treat “no basis shown” as “no gain”

A missing or blank basis box isn’t a sign that you have no taxable result. It usually means the broker didn’t (or couldn’t) report basis to the IRS.

“How to report” depends on your tax software or forms

The instructions for where to report noncovered securities can vary by year and by which capital-gains schedule you use. A safe approach is:

• use the transaction details shown (sale date, proceeds),
• enter your calculated basis where your software asks for it,
• and follow the current filing instructions for your specific forms.

How to check whether a transaction is covered or noncovered

Your best clues are on the 1099-B and sometimes in your brokerage statement.

What to look for on Form 1099-B

• Check for a box labeled “Noncovered Security.”
• Review the transaction details section for notes tied to that label.
• Compare transactions, since one trade in the same year can be covered while another is noncovered.

Use the acquisition date as a supporting clue

If your noncovered transaction was acquired before an applicable effective date, that lines up with how the label works.

Examples you might see include:

• acquisitions before January 1, 2011
• acquisitions before January 1, 2012

Still, don’t assume every security follows the same cutoff the same way. Use these as common explanation examples, then confirm using your broker’s details and your filing-year instructions.

If you’re unsure, check the cost-basis field

One quick check is whether the 1099-B provides basis for that transaction.

• If basis is provided and reported as covered, you may rely on it (but it’s still worth verifying).
• If the trade is marked noncovered and basis isn’t provided, plan on rebuilding basis from your own records.

FAQ

What’s the difference between covered and noncovered securities?

Covered securities are generally those for which your broker reports cost-basis information to the IRS. Noncovered securities are generally those for which the broker may not report basis, often because of acquisition timing versus when the reporting rules took effect.

Are noncovered securities taxable?

They can be. “Noncovered” is about cost-basis reporting, not about whether your sale creates taxable income. You still calculate capital gain or loss using your own basis records if the broker doesn’t provide them.

How do I report noncovered securities on my tax return?

Use the sale details from your 1099-B (like sale date and proceeds), then use your own calculated cost basis if the form doesn’t provide it. Follow the current instructions for your tax form or tax software. Don’t skip the transaction just because broker-reported basis is missing.

What is a noncovered securities 1099-B?

It’s a Form 1099-B where one or more sale entries are marked as noncovered, often shown by a “Noncovered Security” box. The form may report the sale but may not include basis for that entry.

How do I know if my 1099-B is covered or not covered?

Look at the transaction details and see whether “Noncovered Security” is checked. Also check whether basis is present on the form. The acquisition date can help explain the label if it was before an effective date used for basis reporting.

What should I do if my cost basis is missing?

Gather your records and reconstruct basis for the sold shares or lots. If it’s equity compensation like RSUs, use the documents tied to vesting or grant and how you were taxed at the time you received the stock.

If your noncovered transaction involves missing or unclear numbers, it’s smart to verify the applicable filing instructions for your tax year and consider a qualified tax professional—especially if you’re unsure about your basis or lot selection.