You can choose among 3 methods to report the sale of mutual fund shares. Whatever method you choose for a specific fund, you must stick with that method as long as you own shares of that mutual fund. However, you can use different methods for different mutual funds.

The 3 methods are:

• Average basis -- This is the average cost of all the shares you purchased. To learn more, see the Average Basis Method -- Mutual Funds tax tips.
• First-in, first-out -- With this method, you assume that the shares you sold were the first ones you bought. To learn more, see the First-In, First-Out Method tax tip.
• Specific share identification -- With this method, you identify the actual shares you want to sell to minimize your capital gain or maximize your loss.

Also, when figuring the basis of your mutual fund shares, include these amounts:

• Reinvested dividends
• Reinvested capital-gain distributions
• Net undistributed long-term capital gains
• Previously reported wash sales

To learn more, see IRS Publication 564: Mutual Fund Distributions.