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Average basis is the average cost of all shares you bought. You can use this method of figuring your basis only if you did both of these:
The average basis method should be used only if:
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. It doesn’t matter which method you use to figure the basis.
Most mutual fund companies figure the average basis for you and send you a statement. You can figure the average basis yourself using the single-category method.
To use this method:
You must refigure the basis for a later sale if you gain more shares after you initially figure the basis. Ex: You might get more shares if you buy or reinvest dividends.
You could use this method prior to April 1, 2011. To use this method:
You must move short-term shares to the long-term category when you’ve held them for more than one year. The basis is usually the cost. However, if you sell short-term shares using the average basis method, the remaining per-share basis is what you use to figure the gain or loss on the sale.
You also must refigure the basis for a later sale if you gain more shares after you initially figure the basis. Ex: You might get more shares if you buy or reinvest dividends.