Publication 564 |
2000 Tax Year |
Keeping Track of Your Basis
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.
Original basis.
As explained in the following paragraphs, original basis depends on
how you acquired your shares.
Adjusted basis.
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.
Mutual Fund Record
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.
Example.
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 x 100).
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.
Commissions and load charges.
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 mutual fund shares if all of the following
conditions apply.
- You get a reinvestment right because of the purchase of the
shares or the payment of the fee or charge.
- You dispose of the shares within 90 days of the purchase
date.
- 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.
The amount of the original load charge in excess of the reduction
in (3) is added to the cost of the original shares. The rest of the
original load charge is added to the cost basis of the new shares
(unless all three conditions above apply to the purchase of the new
shares).
Reinvestment right.
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.
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.
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.
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.
Shares Acquired by Gift
To determine your original basis of mutual fund shares you acquired
by gift, you must know:
- The donor's adjusted basis,
- The date of the gift,
- The fair market value (the last quoted public redemption
price) of the shares at the time of the gift, and
- Any gift tax paid on the gift of the shares.
Fair market value less than donor's adjusted basis.
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.
Example.
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.
Fair market value equal to or more than donor's adjusted
basis.
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.
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.
Community property states.
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.
Shares you gave the decedent.
A different basis rule applies to inherited shares that you or your
spouse gave the decedent within the one-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.
Appreciated property.
Appreciated property is any property (including mutual fund shares)
whose FMV is more than its adjusted basis.
Exceptions.
This basis rule does not apply if the decedent died before 1982 or
you gave the shares to the decedent before August 14, 1981.
Adjusted Basis
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.
Addition to basis.
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 in box 1a of Form 2439. You should keep Copy C of all Forms 2439
to show increases in the basis of your shares.
Reduction of basis.
You must reduce your basis in your shares by any return of capital
distributions that you receive from the fund.
The mutual fund reports the amount of any return of capital
distributions in box 3 of Form 1099-DIV. You should keep the
form to show the decrease in the basis of your shares.
No reduction of basis.
You do not reduce your basis for distributions from the fund that
are exempt-interest dividends.
Table 2 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.
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