If I transfer securities from one brokerage account to another (Vanguard --> Interactive Brokers), will the cost basis information get transferred as well? A long time after transferring, when I eventually sell my transferred securities, will my current broker know how to calculate gains based on original cost basis from previous broker?
The answer depends upon the type of security and the date it was required. In 2011, the IRS started phasing in new cost basis reporting rules which required brokers to start reporting information such as acquisition date and cost basis on "covered" securities sales on the Form 1099. Prior to that only the gross sales proceeds had to be reported. The term "covered" refers to the phase in date of the security type. For example, stocks acquired after Jan 1, 2011 were considered covered, meaning that if you acquired a stock prior to that date the broker is not obligated to provide the cost basis when sold on the Form 1099; the broker is required to on any security acquired on that date or thereafter. Mutual funds, options and debt instruments were phased in later years. More specific to your question, a transferring broker is required to provide the cost basis information only on "covered" securities, although not necessarily at the same time of the transfer. Most who are DTC participants use DTC's Cost Basis Reporting Service to pass this information on electronically. If you transfer a security to IB and the delivering broker does not provide the cost basis, it's presumed "uncovered" until they do. Since we do not know the cost basis, we will assign a cost basis using the closing price as of the transfer date. We allow you to change the cost basis online but only for "uncovered" securities. As we have an obligation to report accurate cost basis information to the IRS on "covered" securities, that information must originate from the delivering broker.
Thanks IB-AN, so in other words, if I transfer stocks and ETFs purchased after 2014, then they will be "covered" and all the cost-basis information will be transferred to IB from my Vanguard account?
Yes, but depending upon the delivering broker's procedures, not necessarily simultaneous with the date the position transfer completes.