This is a records check, not a tax strategy. Both questions below are answered from documents you already hold — statements, transfer paperwork, and account settings — and both produce findings your tax professional can act on.
Cost basis: the paper trail
Cost basis is, broadly, what you paid for an investment, with adjustments — and it is the figure that determines the gain or loss reported when you sell. If the record is wrong or missing, the reporting rests on reconstruction.
Custodians track and report basis for what the rules call covered shares. Older lots, and positions transferred between firms, may be noncovered — meaning the record is yours to keep. Accounts that moved between custodians are where basis most often goes missing; the receiving firm only knows what the sending firm passed along.
Verify the cost-basis method set on each taxable account — average cost, first-in-first-out, or specific identification. A default applies unless someone deliberately chose otherwise, and the default is worth knowing before any sale, not after.
Asset location: deliberate or accidental
Your accounts fall into broad categories — taxable, tax-deferred, and tax-free — and different holdings generate different kinds of taxable events while you own them. Asset location is simply the question of which holdings sit in which account types.
The audit question is not whether your arrangement is optimal. It is whether it is deliberate. If nobody can say why a holding sits in the account it sits in, that placement is an accident of history — and accidents are findings worth reviewing with your tax professional.
The documents that answer both questions
Everything above is checked from four sources: your account statements (which show the holdings and, for taxable accounts, usually the basis on record), the cost-basis or tax-lot page of your custodian's portal (which shows the method and flags noncovered lots), the transfer paperwork from any account that changed firms, and the year-end tax documents your custodian issues. If a lot shows no basis, the paper trail runs backward through confirmations and old statements — which is why the time to reconstruct it is before a sale forces the question on a deadline.
The hygiene checklist
- Confirm basis exists for every taxable lot — especially anything transferred, inherited, or received as a gift.
- Check the basis method on each account — and whether it was chosen or defaulted.
- Keep the paperwork for inherited and gifted positions — the basis rules for each differ, and the documents are the evidence.
- Write one line per holding: why this account? — blanks are the finding.
A necessary boundary
Nothing here is tax advice, and we do not prepare tax filings. Bring the findings to your tax professional — a clean records file makes their review faster and their answers better.
This material is educational only. It is not tax or legal advice — consult your tax professional about your own situation.