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Mutual Funds (Costs, Distributions, etc.)

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

Answer:

In order to figure your gain or loss using an average basis:

  • You must have acquired the shares at various times and prices, or
  • You acquired the shares after December 31, 2010 in connection with a dividend reinvestment plan, and you left the shares on deposit in an account handled by a custodian or agent who acquires or redeems those shares.

To calculate average basis:

  • First, add up the cost of all the shares you own in the mutual fund.
  • Divide that result by the total number of shares you own.
  • This gives you your average per share.  Multiply that number by the number of shares sold.

A written election to use the average basis method on a covered security must be filed with your custodian or agent who keeps the account. You must also notify your broker of the election. Generally, a covered security is a security you acquired after 2010.

For noncovered securities, you elect to use the average basis method on your income tax return for the first taxable year that the election applies.

You may no longer use the double-category method for figuring your average basis.  If you were using that method for shares you acquired before April 1, 2011 and you sell, exchange or otherwise dispose of those shares on or after April 1, 2011, you must figure the average basis of those shares by averaging together all identical shares in the account on April 1, 2011, regardless of holding period.

Additional Information:


Category: Capital Gains, Losses and Sale of Home
Subcategory: Mutual Funds (Costs, Distributions, etc.)

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The OMB number for this study is 1545-1432.
If you have any comments regarding this study, please write to:
IRS, Tax Products Coordinating Committee
SE:W:CAR:MP:T:T:SP
1111 Constitution Avenue NW
Washington, DC 20224