skip navigation

Search Help
Navigation Help


Main Topics
A B C D E F G H I
J K L M N O P Q R
S T U V W X Y Z #


FAQs
Forms
Publications
Tax Topics


Comments
About Tax Map

previous page Previous Page: Publication 564 - Mutual Fund Distributions - Mutual Fund Distributions
next page Next Page: Publication 564 - Mutual Fund Distributions - Sales, Exchanges, and Redemptions
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication
taxmap/pubs/p564-001.htm#en_us_publink100097746

Keeping Track  
of Your Basis(p4)


rule
spacer

previous topic occurrence Basis next topic occurrence

You should keep track of your basis in mutual fund shares because you need the basis to figure any gain or loss on the shares when you sell, exchange, or redeem them.
taxmap/pubs/p564-001.htm#en_us_publink100097747

Original basis.(p4)


rule
spacer

As explained in the following paragraphs, original basis depends on how you acquired your shares.
taxmap/pubs/p564-001.htm#en_us_publink100097748

Adjusted basis.(p4)


rule
spacer

As described later under Adjusted Basis, your original basis is adjusted (increased or decreased) by certain events. You must keep accurate records of all events that affect basis so you can figure the proper amount of gain or loss.
taxmap/pubs/p564-001.htm#en_us_publink100097749

Shares Acquired by Purchase(p4)


rule
spacer

Shares Acquired by Purchase

The original basis of mutual fund shares you bought is usually their cost or purchase price. The purchase price usually includes any commissions or load charges paid for the purchase.
taxmap/pubs/p564-001.htm#en_us_publink100097750

Example.(p4)

You bought 100 shares of Fund A for $10 a share. You paid a $50 commission to the broker for the purchase. Your cost basis for each share is $10.50 ($1,050 ÷ 100).
Where Refund
When you buy or sell shares in a fund, keep the confirmation statements you receive. The statements show the price you paid for the shares when you bought them and the price you received for the shares when you disposed of them. The information from the confirmation statement when you purchased the shares will help you figure your basis in the fund.
taxmap/pubs/p564-001.htm#en_us_publink100097752

Commissions and load charges.(p4)


rule
spacer

The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. You can usually add acquisition fees and charges to your cost of the shares and thereby increase your basis. A fee paid to redeem the shares is usually a reduction in the redemption price (sales price).
You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of the following conditions apply.
  1. You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge.
  2. You dispose of the shares within 90 days of the purchase date.
  3. You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares.
The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares. The rest of the original fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of the new shares).
taxmap/pubs/p564-001.htm#en_us_publink100097753

Reinvestment right.(p5)
spacer

This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge, or by paying a reduced fee or load charge.
taxmap/pubs/p564-001.htm#en_us_publink100097754

Shares Acquired by Reinvestment(p5)


rule
spacer

Shares Acquired by Reinvestment

The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. This rule applies even if the distribution is an exempt-interest dividend that you do not report as income.
Where Refund
When you acquire shares through reinvestment, keep the statements that show each date, amount, and number of full or fractional shares purchased. Keep track of any adjustments to basis of the shares as they occur.
Deposit
Generally, you must know the basis per share to compute gain or loss when you dispose of the shares. This is explained under Identifying the Shares Sold, later.
taxmap/pubs/p564-001.htm#en_us_publink100097757

Shares Acquired by Gift(p5)


rule
spacer

Shares Acquired by Gift

To determine your original basis of mutual fund shares you acquired by gift, you must know:
taxmap/pubs/p564-001.htm#en_us_publink100097758

Fair market value less than donor's adjusted basis.(p5)


rule
spacer

If the fair market value (FMV) of the shares at the time of the gift was less than the adjusted basis to the donor at the time of the gift, your basis for gain on their disposition is the donor's adjusted basis. Your basis for loss is the FMV of the shares at the time of the gift. In this situation, it is possible to sell the shares at neither a gain nor a loss because of the basis you have to use.
taxmap/pubs/p564-001.htm#en_us_publink100097759

Example.(p5)

You are given mutual fund shares with an adjusted basis of $10,000 at the time of the gift. The FMV of the shares at the time of the gift is $9,000. You later sell the shares for $9,500. The basis for figuring a gain is $10,000, so there is no gain. There also is no loss, since the basis for figuring a loss is $9,000. In this situation, you have neither a gain nor a loss.
taxmap/pubs/p564-001.htm#en_us_publink100097760

Fair market value equal to or more than donor's adjusted basis.(p5)


rule
spacer

If the FMV of the shares at the time of the gift was equal to or more than the donor's adjusted basis at the time of the gift, your basis is the donor's adjusted basis at the time of the gift, plus all or part of any gift tax paid on the gift, depending on the date of the gift.
For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551, Basis of Assets.
taxmap/pubs/p564-001.htm#en_us_publink100097761

Shares Acquired by Inheritance(p5)


rule
spacer

Shares Acquired by Inheritance

If you inherited shares in a mutual fund, your original basis is generally the fair market value (FMV) (the last quoted public redemption price) on the date of the decedent's death, or the alternate valuation date if chosen for estate tax purposes.
taxmap/pubs/p564-001.htm#en_us_publink100097762

Community property states.(p5)


rule
spacer

In community property states, you and your spouse generally are considered to each own half the estate (excluding separate property). If one spouse dies and at least half of the community interest is includible in the decedent's gross estate (whether or not the estate is required to file a return), the FMV of the community property at the date of death becomes the basis of both halves of the property.
For example, if the FMV of the entire community interest in a mutual fund is $100,000, the basis of the surviving spouse's half of the shares is $50,000. The basis of the heirs' half of the shares also is $50,000.
In determining the basis of assets acquired from a decedent, property held in joint tenancy is community property if its status was community property under state law.
taxmap/pubs/p564-001.htm#en_us_publink100097763

Shares you gave the decedent.(p5)


rule
spacer

A different basis rule applies to inherited shares that you or your spouse gave the decedent within the 1-year period ending on the date of the decedent's death if, on the date of the gift, the shares were appreciated property. In this situation, the basis of the inherited shares is the decedent's adjusted basis in them immediately before his or her death, rather than their FMV.
This basis rule also applies if the decedent's estate (or a trust of which the decedent was the grantor) sells the shares instead of distributing them to you, and you are entitled to the proceeds.
taxmap/pubs/p564-001.htm#en_us_publink100097764

Appreciated property.(p5)
spacer

Appreciated property is any property (including mutual fund shares) whose FMV is more than its adjusted basis.
taxmap/pubs/p564-001.htm#en_us_publink100097765

Exceptions.(p5)
spacer

This basis rule does not apply if the decedent died before 1982 or you gave the shares to the decedent before August 14, 1981.
taxmap/pubs/p564-001.htm#en_us_publink100097766

Adjusted Basis(p5)


rule
spacer

previous topic occurrence Adjusted Basis next topic occurrence

After you acquire mutual fund shares, you may need to make adjustments to your basis. The adjusted basis of your shares is your original basis (defined earlier), increased or reduced as described here.
taxmap/pubs/p564-001.htm#en_us_publink100097767

Addition to basis.(p5)


rule
spacer

Increase the basis in your shares by the difference between the amount of undistributed capital gain you include in income and the tax considered paid by you on that income.
The mutual fund reports the amount of your undistributed capital gain on Form 2439, box 1a, and any tax paid by the mutual fund in box 2. You should keep Copy C of all Forms 2439 to show increases in the basis of your shares.
taxmap/pubs/p564-001.htm#en_us_publink100097768

Reduction of basis.(p5)


rule
spacer

You must reduce your basis in your shares by any nondividend distributions that you receive from the fund.
The mutual fund reports the amount of any nondividend distributions on Form 1099-DIV, box 3. You should keep the form to show the decrease in the basis of your shares.
taxmap/pubs/p564-001.htm#en_us_publink100097769

Basis cannot go below zero.(p5)
spacer

Your basis cannot be reduced below zero. If your basis is zero, you must report the nondividend distribution on your tax return as a capital gain. Report this capital gain on Schedule D (Form 1040). Whether it is a long-term or short-term capital gain depends on how long you held the shares.
taxmap/pubs/p564-001.htm#en_us_publink100097770

No reduction of basis.(p5)
spacer

You do not reduce your basis for distributions from the fund that are exempt-interest dividends.
taxmap/pubs/p564-001.htm#f15112n02

Table 2. Mutual Fund Record

Mutual FundAcquired1Adjustment to Basis Per ShareAdjusted2 Basis Per Share Sold or redeemed
DateNumber of SharesCost Per ShareDateNumber of Shares
            
     
            
            
            
            
            
            
            
            
            
            
1 Include share received from reinvestment of distributions.
2 Cost plus or minus adjustments.
Where Refund
Table 2. This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. This worksheet will help you figure the adjusted basis when you sell or redeem shares.
previous pagePrevious Page: Publication 564 - Mutual Fund Distributions - Mutual Fund Distributions
next pageNext Page: Publication 564 - Mutual Fund Distributions - Sales, Exchanges, and Redemptions
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication