Average Basis Method - Mutual Funds in header of articles
Average Basis Method - Mutual Funds in content page of articles
Average basis is the average cost of all shares you purchased. You can use this method of calculating your basis only if you did both of these:
Purchased your mutual fund shares at various times and prices
Left the shares on deposit in an account handled by a custodian or agent, like a broker or your mutual fund company
The average basis method should be used only if:
You didn’t sell all the shares in the fund.
You choose the average basis method for the fund for all prior years. After you choose to use the average basis method for a fund, you must use it for all accounts in that fund. However, you can use different methods for different mutual funds that you own.
Using the average basis method allows you to vary the amount of your gain or loss for the year when you first choose the method. Over time the total gain or loss from the sale of all shares of the fund will be the same regardless of the method used to figure the basis.
Most mutual fund companies calculate the average basis for you and send you a statement with this information. You can calculate the average basis yourself using the single-category method.
Prior to April 1, 2011, you could also use the double-category method
To use this method:
Total the cost of all the shares you own in a mutual fund.
Divide that result by the total number of shares owned to get the average basis per share.
Multiply that number by the number of shares sold. The shares are considered to be sold in the order you acquired them for purposes of the holding period.
You must refigure the basis for a later sale if you acquire more shares after you initially figure the basis. Ex: You might acquire more shares if you buy or reinvest dividends.
Ex: You sold 400 shares of a mutual fund on June 14, 2012, for $4,000. At the time of the sale, you held a total of 526 shares that you purchased at various times.
Total Number of Shares
Cost per Share
Using the single-category method, your basis per share is $9.51:
$9.51 (cost per share) x 400 (shares sold) = $3,804
Since you didn’t specifically identify the shares you sold, you’ll treat the sale as if you sold the share that you purchased first. So, you’ll recognize a gain or loss based on when you bought these shares:
240 shares acquired Jan. 3, 2009
25 shares acquired July 3, 2009
57 shares acquired Jan. 6, 2010
78 shares acquired Dec. 22, 2011
Since you held the 78 shares acquired on Dec. 22, 2011, for less than a year, you recognize a short-term gain (or loss). Since you held the remaining 322 shares for more than a year, you recognize a long-term gain (or loss).
Your basis for the short-term shares sold is $741.78:
78 (shares sold) x $9.51 (average cost per share) = $741.78
Your gross proceeds from the short-term shares you sold are $780.00:
$4,000 (total sale price) / 400 (total shares sold) x 78 (short-term shares sold) = $780.00
Your basis for the long-term shares sold is 3,062.22:
322 (shares sold) x $9.51 (average cost per share) = $3,062.22
Your gross proceeds from the long-term shares you sold are $3,220:
$4,000 (total sale price) / 400 (total shares sold) x 322 (long-term shares sold) = $3,220
You could use this method prior to April 1, 2011:
Divide the shares into 2 categories -- those held long-term and those held short-term.
Divide the total cost of the shares in each category by the number of shares in that category. This will give you the average basis for each category. Unless the shares sold are specifically identified, shares in the long-term category are considered to have been sold first.
Multiply the basis for each category by the number of shares sold from that category.
You must move short-term shares to the long-term category when you’ve held them for more than 1 year. The basis is generally the cost. However, you might sell short-term shares using the average basis method. If so, the remaining per share basis is the basis used to figure the gain or loss on the sale.
You also must refigure the basis for a later sale if you acquire more shares after you initially figure the basis. Ex: You might acquire more shares if you buy or reinvest dividends.