A noncovered security is an investment for which your brokerage firm is not legally required to report the “cost basis” (the original purchase price) to the IRS. When you sell one of these assets, your broker will report how much you sold it for, but the burden of proving what you originally paid falls entirely on you.

1. Meaning of “Noncovered security”

In plain English, a noncovered security is a “legacy” investment that falls outside modern tax reporting laws. Before 2011, brokers only had to tell the IRS how much money you received from a sale; they didn’t have to report the profit.

Because these assets were purchased before the IRS mandated stricter tracking, they are essentially “orphaned” from the automated systems we use today. If you sell a noncovered security, the IRS receives a notice of the sale price, but the “cost” box on your tax forms will likely be blank or marked as “N/A.”

2. Why “Noncovered security” Matters

Taxpayers should care about this term because it represents a potential tax trap. If you sell a noncovered security and cannot prove what you paid for it, the IRS may assume your cost basis is zero.

This means you would owe capital gains tax on the entire sale price, rather than just the profit. Finding your own records for noncovered securities is the only way to ensure you aren’t paying double or triple the taxes you actually owe.

3. How “Noncovered security” Works

In real tax filing situations, the status of a security depends on when it was bought. The IRS phased in “covered” status over several years (starting with stocks in 2011, mutual funds in 2012, and complex bonds later). Anything bought before those dates is “noncovered.”

The Sale: You sell the asset through your broker.
The 1099-B: You receive a tax form showing the “Proceeds” (the money you got).
The Missing Piece: The “Cost Basis” section for that specific sale will be empty or “unreported.”
The Detective Work: You must go through old paper statements, digital archives, or historical price data to find the original purchase price to include on your tax return.

4. Simple Example of “Noncovered security”

Imagine you bought 100 shares of a company back in 2005 for $2,000. You held onto them for nearly two decades. Today, you sell those shares for $10,000.

Because you bought them before the 2011 reporting rules, they are noncovered securities. Your broker sends a Form 1099-B to you and the IRS showing you received $10,000. It does not show the $2,000 you paid. If you don’t manually enter that $2,000 on your tax return, the IRS will think you made a $10,000 profit and tax you on the full amount.

5. Who Is Affected by “Noncovered security”?

Long-term Investors: Anyone who “buys and holds” stocks or funds for more than 10–15 years.
Retirees: Seniors who may be selling off chunks of a portfolio built over a lifetime.
Heirs: People inheriting stocks from parents or grandparents (though they often get a “step-up” in basis, the historical records are still vital).
Small Business Owners: Who may have invested company reserves into legacy stocks or bonds years ago.

6. Common Mistakes Related to “Noncovered security”

Assuming the Broker Has the Data: Just because you can see the purchase price on your app doesn’t mean the broker reported it to the IRS.
Using $0 as the Basis: Many taxpayers get overwhelmed and just leave the basis blank, which results in a massive unnecessary tax bill.
Losing Old Statements: Throwing away “ancient” paper records that contain the only proof of what a noncovered security cost.
Mixing Lots: Selling a mix of covered (new) and noncovered (old) shares and failing to separate the tax treatment on Form 8949.

7. Forms Related to “Noncovered security”

Form 1099-B: Look for the section labeled “Transactions for which basis is NOT reported to the IRS.”
Form 8949: You must list noncovered transactions in Part II (for long-term) and check Box E or Box F.
Schedule D (Form 1040): Where the total gain or loss from these noncovered items is summarized.

8. “Noncovered security” vs. Related Terms

vs. Covered Security: A covered security is one where the broker is required to report the cost basis to the IRS. These are usually assets bought after 2011.

vs. Cost Basis: Cost basis is the actual number (the price) you paid. “Noncovered” is the category that describes who is responsible for reporting that number.

9. Related Glossary Terms

10. FAQs About “Noncovered security”

How do I find the cost basis if I lost my records?
You can look at historical stock price websites for the date you think you bought it, or contact the company’s “Investor Relations” department. In some cases, your broker might have “unofficial” records that weren’t sent to the IRS.

Can I just guess what I paid?
The IRS requires you to be as accurate as possible. If you must estimate, you should have a logical reason for how you arrived at that number (like a historical price chart) in case of an audit.

Does “noncovered” mean I don’t have to pay taxes?
No. It simply means the broker didn’t tell the IRS what you paid. You still owe taxes on any profit you made from the sale.

Are all old stocks noncovered?
Generally, yes. If you bought a stock before 2011, it is almost certainly a noncovered security.

11. Final Takeaway

A noncovered security is a reminder that the IRS doesn’t always have all the answers. While modern technology makes tax filing feel automatic, legacy investments require you to be your own record-keeper. If you see a “noncovered” label on your brokerage statement, take the time to dig up your original purchase price. Those old receipts or statements could save you thousands of dollars in capital gains taxes. Always verify current reporting thresholds and rates for the current tax year to keep your planning accurate.

12. Disclaimer: This article is for general educational purposes only and should not be considered tax, legal, or financial advice. Tax rules can change, and Net income r situation may be different. Consider consulting a qualified tax professional before making tax decisions.

What Is “Noncovered security”?