How to Calculate a Mutual Fund Basis

by Alia Nikolakopulos

When you acquire ownership or invest in a mutual fund, you have a basis in the asset. Your basis is used to calculate your gain or loss on the mutual fund when you sell it. Depending on your mutual fund purchasing activities, the Internal Revenue Service may allow you to choose one of two methods to calculate your basis in the fund. If you purchase a mutual fund on one date for one price, you must use the traditional cost-basis method. If you purchase shares within the same mutual fund at various times for different prices, you may select the cost-basis method or the average basis method.

Cost Basis Method

Determine the amount per mutual fund share you paid when you first purchased the mutual fund. Multiply the price-per-share by the number of mutual fund shares you purchased.

Calculate the costs of your investment. This includes commissions and transfer fees paid, if applicable. Brokers charge commission and service fees for certain transactions you initiate for trading, selling or transferring your mutual fund shares. Each broker has different rates, and the rates may vary depending on the value of your transaction. Rates are disclosed in your service agreement, but are also itemized on your broker statements. If you are unsure of the investment costs you incur, reference your statement or contact your broker.

Add your investment costs to the cost of your mutual fund shares. The result is your cost basis.

Single-category Average Basis Method

Add the total cost of all the shares in your mutual fund. Include expenses you pay for commissions or other fees required to maintain your investment. This method may be elected when all your mutual fund shares have been held for less than one year, also known as a short-term holding period, or when all your mutual fund shares have been held for longer than one year, also known as a long-term holding period. Do not use this method if you have both short-term and long-term shares in your mutual fund.

Divide the total cost for all shares by the number of shares you own within the mutual fund. The result is your average cost per share.

Multiply your average cost per share by the number of mutual fund shares you sold. The result is your single-category average basis.

Double-category Average Basis Method

Divide your mutual fund shares into two categories: Short-term shares, or shares that you have owned less than one year; and long-term shares, or shares that you have owned longer than one year.

Add the total cost of all your short-term shares. Divide the result by the number of short-term shares you own. The result is your average cost per short-term mutual fund share. Multiply the average cost per short-term share by the number of short-term shares you sold. The result is your average basis for the short-term shares sold.

Add the total cost of all your long-term shares. Divide the result by the number of long-term shares you own. Multiply the result by the number of long-term shares you sold. The result is your average basis for long-term shares sold.

Tip

  • If you have trouble determining the cost of your shares or your holding period for shares, ask your broker for an itemized account statement. The statement lists the dates you purchased mutual fund shares and the price you paid for the shares.

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