How do I calculate the average basis for the sale of mutual fund
shares?
In order to figure your gain or loss using an average basis, you must have
acquired the shares at various times and prices and have left them on deposit
in a managed account.
There are two average basis methods:
- Single-category method, and
- Double-category method.
Single-category method. 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.
Double-category method. First, divide your shares into two categories,
long-term and short-term. Then use the steps above to get an average basis
for each category. The average basis for that category is then the basis of
each share in the sale from that category.
Once you elect to use an average basis method, you must continue to use
it for all accounts in the same fund. You must clearly identify on your tax
return the average basis method that you have elected to use. You do this
identification by including "AVGB" in column (a) of Form 1040, Schedule D (PDF) .
Refer to Publication 564 , Mutual Fund Distributions, Sales,
Exchanges and Redemptions .
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?
No, you may use a different method, as long as you have not used an average
basis method for that fund previously. Once you have elected to use an average
basis method to compute the gain or loss on shares in a mutual fund, you must
use that same method for the sale of shares from any account in that same
fund.
How do I calculate the average cost method of a mutual fund if the
fund price splits?
If your mutual fund splits, or adjusts its price, it is treated like a
stock split. Your total basis doesn't change after the split, but since you
now own more shares without paying any more money, your per-share basis will
decrease. To calculate your per-share basis, divide the total cost that you
have invested in the fund (minus any shares previously sold) by the current
number of shares that you hold.
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