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Frequently Asked Tax Questions

Capital Gains, Losses/Sale of Home - Mutual Funds (Costs, Distributions, etc.)


Rev. date: 1/2010


I have both purchased and sold shares in a money-market mutual fund. The fund is managed so the share price is constant. All gain is reported as dividends. Do I have to report the sale of these shares?

previous topic occurrence Capital Gains and Losses next topic occurrence
previous topic occurrence Dividend next topic occurrence
previous topic occurrence Gain next topic occurrence
previous topic occurrence Mutual Fund next topic occurrence
previous topic occurrence Mutual Fund Distributions next topic occurrence
previous topic occurrence Mutual Fund Shares next topic occurrence
previous topic occurrence Stock Sale next topic occurrence

Generally, whenever you sell, exchange, or otherwise dispose of a capital asset, you report it on Schedule D.

Rev. date: 1/2010


How does the return of principal payments affect my cost basis when I sell mutual funds?

previous topic occurrence Basis next topic occurrence
previous topic occurrence Capital Gains and Losses next topic occurrence
previous topic occurrence Mutual Fund next topic occurrence

Unlike a dividend or a capital gain distribution, a return of capital:

Rev. date: 1/2010


How do I calculate the average basis for the sale of mutual fund shares?

previous topic occurrence Average Basis next topic occurrence
previous topic occurrence Average Costs next topic occurrence
previous topic occurrence Basis next topic occurrence
previous topic occurrence Mutual Fund next topic occurrence
previous topic occurrence Mutual Fund Distributions next topic occurrence
previous topic occurrence Mutual Fund Shares next topic occurrence

In order to figure your gain or loss using an average basis:
There are two average basis methods:
Single-category method:
Double-category method:
Once you elect to use an average basis method:

Rev. date: 1/2010


If I used an average basis method for shares of one mutual fund I sold, do I have to use it for all mutual funds I sell?

previous topic occurrence Average Basis next topic occurrence
previous topic occurrence Average Costs next topic occurrence
previous topic occurrence Mutual Fund next topic occurrence
previous topic occurrence Mutual Fund Distributions next topic occurrence
previous topic occurrence Mutual Fund Shares next topic occurrence

No, you may use a different method for shares in a different mutual fund. However, once you have elected to use an average basis method to compute the gain or loss on shares in a specific mutual fund, you must use that same method for the sale of shares from any account in that same mutual fund.

Rev. date: 1/2010


How do I calculate the average cost method of a mutual fund if the fund price splits?

previous topic occurrence Average Costs next topic occurrence
previous topic occurrence Cost Method next topic occurrence
previous topic occurrence Mutual Fund next topic occurrence
previous topic occurrence Mutual Fund Distributions next topic occurrence
previous topic occurrence Stock Split next topic occurrence

If your mutual fund splits, or adjusts its price:

Rev. date: 1/2010


I received a 1099-DIV showing a capital gain. Why do I have to report capital gains from my mutual funds if I never sold any shares?

previous topic occurrence 1099 Series of Forms next topic occurrence
previous topic occurrence Capital Gain Distributions next topic occurrence
previous topic occurrence Capital Gains and Losses next topic occurrence
previous topic occurrence Mutual Fund next topic occurrence
previous topic occurrence Mutual Fund Distributions next topic occurrence
previous topic occurrence Undistributed Capital Gains of Mutual Funds and REITs next topic occurrence

A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management.
You own shares in the fund, but the fund owns assets such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for you is to sell these assets at a gain. If the asset was held by the mutual fund for more than one year, the nature of the income is capital gain, which gets passed on to you. These are called capital gain distributions, which are distinguished on Form 1099-DIV (PDF) from other types of income such as ordinary dividends.
Capital gains distribution are taxed as long term capital gains regardless of how long you have owned the shares in the mutual fund. If your capital gains distribution is automatically reinvested, the reinvested amount is the basis of the additional shares purchased.