Cost Basis
What is cost basis? Show
Cost basis is the original value of your mutual fund shares for tax purposes (usually the purchase price), adjusted for stock splits, dividends and return of capital distributions. This value is used to determine the capital gain or loss when your shares are sold. The gain or loss is the difference between the market value of your shares when sold and the cost basis of your shares. Cost basis is also known as "tax basis".

Internal Revenue Service (IRS) regulations require mutual funds to provide cost basis information for shares acquired after January 1, 2012 to shareholders and the IRS.

Where can I find cost basis information for my account? Show
Cost basis information can be found on your quarterly statement. If you have established Online Access for your account, you may also view your cost basis information via our website 24 hours a day. To register for Online Access or log in to your account, click here.
Which of my mutual fund shares will be subject to cost basis tax reporting? Show
Redemptions and exchanges of shares purchased after January 1, 2012 ("covered shares") will be subject to mandatory cost basis reporting as part of your Form 1099-B. Redemptions and exchanges of shares purchased before January 1, 2012 ("noncovered shares") will not be subject to mandatory cost basis reporting.
Why can't I find cost basis information for my money market fund? Show
Cost basis is not tracked on these types of accounts because the price per share does not normally fluctuate and redemptions are not reported on form 1099-B.
Does the cost basis reporting requirement affect my IRA accounts? Show
No, cost basis is not tracked on these types of accounts.
What are covered and noncovered shares? Show
Covered shares are shares acquired after January 1, 2012. Covered shares require cost basis and gain/loss reporting, from Harbor, to the shareholder and to the IRS. Cost basis for covered shares is reported on Form 1099-B.

Noncovered shares are shares that were acquired prior to January 1, 2012, for which cost basis reporting to the IRS, from Harbor, is not required. Harbor uses the Average Cost Method to calculate your cost basis on noncovered shares. Cost basis information for noncovered shares is provided to you on Form 1099-B, but is NOT reported to the IRS. You may also view your noncovered cost basis information on your quarterly statement.

Will you be recalculating my cost basis on redemptions made prior to January 1, 2012 using the new cost basis method? Show
No. Harbor Funds will not recalculate redemptions prior to January 1, 2012, but will continue to provide Average Cost basis information for shares acquired prior to January 1, 2012 when available.
What is your fund's primary method and do I have to use it? Show
The Harbor Funds primary accounting method is Average Cost. You are under no obligation to use this method and may select a different method by using the Cost Basis Election Form.
What cost basis methods are available to me? Show
Harbor Funds offers several accounting methods for valuing the cost of shares sold in an account. Please review the following available methods:
  • Average Cost (ACST) – Calculates the cost of shares in an account by averaging the cost of all purchases made after January 1, 2012. The basis of the shares redeemed, which are redeemed in a first-in-first-out order, is determined by multiplying the shares redeemed by the average cost per share. This is Harbor Funds' primary cost basis method.
  • First In, First Out (FIFO) – Shares acquired first in the account are the first shares depleted to determine the cost basis or gain/loss.
  • Last In, First Out (LIFO) – Shares acquired last in the account are the first shares depleted to determine the cost basis or gain/loss.
  • Highest Cost, First Out (HIFO) – Shares acquired with the highest cost per share in the account are the first shares depleted to determine the cost basis or gain/loss.
  • Lowest Cost, First Out (LOFO) – Shares acquired with the lowest cost per share in the account are the first shares depleted to determine the cost basis or gain/loss.
  • Loss/Gain Utilization (LGUT) – Shares with losses are depleted before shares with gains. For shares that are sold at a loss, shares owned one year or less (short-term) will be sold before shares owned more than one year (long-term). For shares that sold at a gain, shares with long-term gains will be sold before shares with short-term gains. Because tax rates for long-term gains are generally favorable, long-term gains are given priority over short-term gains to minimize the current tax liability.
  • Specific Lot Identification (SLID) – Shares that are specifically selected by the shareholder are depleted to determine the cost basis or gain/loss. Specific Lot Identification can only be used at the time of the transaction to override the current cost basis accounting method. You may not select this as your standard cost basis method.

Please keep in mind that each of these cost basis methods applies only to "covered shares", which are shares purchased after January 1, 2012.

Since each shareholder's tax situation is different, you may want to consult your qualified tax advisor for guidance on your cost basis selection.

If you have any questions, please do not hesitate to contact us at 800-422-1050. Our Shareholder Services Representatives are available Monday through Friday, 8 a.m. to 6 p.m. Eastern time, to answer your questions.

If I use the average cost method, how does Harbor determine which shares are being sold? Show
For accounts using average cost, which is Harbor's primary cost basis method, we will sell your oldest shares first. If your account holds both noncovered and covered shares, your oldest shares would be noncovered, and those would be sold first. Once all noncovered shares are sold, Harbor will sell the covered shares.

Please note that average cost for noncovered and covered shares are tracked separately, so you will have two average cost figures.

How do I change the cost basis election method on my account? Show
Online

If you have established Online Access for your account you may elect a new cost basis method, for your existing account(s) and future accounts, via our website 24 hours a day. To register for Online Access or log in to your account, click here.

By Mail

You may also select a different method by completing the Cost Basis Election Form.

Mail the form to the appropriate address below.

First class mail to:
Harbor Funds
P.O. Box 804660
Chicago, IL 60680-4108

Express or registered mail to:
Harbor Funds
111 South Wacker Drive
34th Floor
Chicago, IL 60606-4302

Please be aware that Harbor Funds is not responsible for any mail that is lost or misdirected by the U.S. Post Office or any other delivery service.

If I sell both covered and noncovered shares after January 1, 2012, what will happen? Show
Harbor Funds will determine a cost basis for your covered shares (i.e. shares acquired after January 1, 2012) based upon your selected cost basis method and report that to you and to the IRS. Harbor Funds will separately provide you with a cost basis calculation for your noncovered shares (i.e., shares acquired prior to January 1, 2012) that is based upon the Average Cost method. Redemptions of noncovered shares are not reported to the IRS.
Can I make a one time change of my cost basis method at the time of redemption? Show
Yes, you can request a one-time override of your previous choice at the time of redemption without permanently changing the cost basis method on your account.
When can I use specific share identification as my cost basis method? Show
You may only use specific share identification at the time of redemption or exchange by overriding the existing cost basis method applicable to your account. Specific share identification will only apply to that particular redemption or exchange transaction, and your account would revert to your prior cost basis method for future redemptions. However, specific share identification may not be available in most instances when the existing cost basis method for the account is Average Cost. If Average Cost is the method applicable to your account and you wish to make a redemption using specific share identification, you should contact Harbor Funds to determine whether specific share identification would be available for that transaction.
Since Harbor provides cost basis information to the IRS, am I still responsible for reporting cost basis to the IRS? Show
Yes. You are required to report cost basis information for all shares redeemed or exchanged, as well as capital gains and losses on your transactions for both covered and noncovered shares.

When reporting cost basis information on your federal and state income taxes, you should carefully review the cost basis information provided by Harbor Funds and make any necessary adjustment to cost basis, holding periods or wash sales. You are solely responsible for complying with all federal and state income tax laws when filing income tax returns.

What are "wash sales," and how does Harbor track them? Show
Under current IRS regulations, a wash sale occurs when a shareholder sells mutual fund shares at a loss and within 30 days before or after the sale, the shareholder purchased substantially identical shares. If a wash sale is identified, this loss would be disallowed for the current year.

For the purpose of determining wash sales, Harbor tracks purchases and sales of identical shares within the same account. If a wash sale occurred, it will be reported as such on Form 1099-B. Please note that Harbor does not track wash sales across different registrations (for example, between an individual account and a joint account) and shareholders are still obligated to correctly account for all wash sales when filing an income tax return.

If I'm currently using average cost, how will changing my method affect my shares? Show
If you are using average cost and you elect a new method, the effect on your account will depend on whether or not you have sold, exchanged, or transferred shares in your account prior to electing the new method. It's important to remember that you can only elect a method other than average cost for covered shares.

If you have already sold, exchanged or transferred shares while using average cost, you are locked into average cost for those shares that were acquired before you changed your method. Any new shares acquired after you change your method will use the new method selected.

If you have not sold, exchanged or transferred shares while using average cost, your new method will apply to all covered shares in your account.

If I have an automatic exchange or automatic redemption plan on my account, how are those affected by my cost basis method? Show
Whatever method you have elected on your account will apply to all sales, including automatic withdrawals, automatic exchanges, or checkwriting redemptions. If you don't choose a method, Harbor will continue to use average cost for all automated sales of shares.