Rev. date: 10/6/2011In order to figure your gain or loss using an average basis:
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You must have acquired the shares at various times and prices.
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Have left them on deposit in an account handled by a custodian
or agent who maintains an account for the acquisition or redemption of these
shares.
There are two average basis methods:
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Single-category method.
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Double-category method.
Single-category method:
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First, add up the cost of all the shares you own in the mutual
fund.
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Divide that result by the total number of shares you own.
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This gives you your average per share. Multiply that number
by the number of shares sold.
Double-category method:
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First, divide your shares into two categories, long-term and
short-term.
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Shares held for 1 year or less are short-term.
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Shares held for more than 1 year are long-term.
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Then use the steps described under the single-category method
to get an average basis for each category.
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The average basis for that category is then the basis of each
share sold from that category.
Once you elect to use an average basis method:
Rev. date: 6/29/2011No, 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: 10/6/2011A 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.
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