Non-Covered Security
Candlefocus EditorNon-covered security investments are generally securities that are bought, yet transferred in the same year to a dividend reinvestment plan, or DRIP, which uses the average cost method in order to calculate the cost basis. Non-covered securities are also defined as securities sold by foreign intermediaries, such as those who are absent from country for a time period of 183 days or more in one calendar year.
Investment sales are categorized into two subsets: covered and non-covered securities. Form 8949 is the form used to divide investment sales into both categories, along with the cost basis reporting process of investments being launched.
Non-covered securities are normally exempt from the 1099-B cost basis reporting process to the IRS. This means that unless otherwise noted, the cost basis of non-covered securities will not be reported to the IRS. These securities are also subject to different tax rules for losses on the underlying investments.
In summary, a non-covered security is an SEC classification associated with stocks, bonds and other securities of small and limited scope, meaning the cost basis associated with them may not be reported to the IRS. Non-covered securities are generally those investments that are bought, then transferred the same year to a dividend reinvestment plan, or DRIP, and usually exempted from the 1099-B cost basis reporting process. Moreover, non-covered securities are also taxable under different tax rules for losses. Investors should take caution when considering non-covered securities when making investments.