Capital gain calculation on mutual fund

klauJanuary 3, 2012

Does anyone have any idea how to calculate capital gain/loss on mutual fund using the average cost single category? To be specific, I'm considering to cash out one of the fund that I have invested "monthly" for 7+ years. Technically, the monthly investment and the dividend reinvestment that were made within the past 12 months are considered short term investment with a 28% tax rate while investment made over 12 months ago should be considered long term with 15% tax rate. How do I calculate it using the average cost single category method?

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Add up all the purchases (the cash out of your pocket that you paid to buy shares), along with any dollar amounts reinvested, and don't forget any amount that you had to pay for an investment fee (for example if a percentage of your initial investment went to pay a broker or a "load" rather than actually buy shares). This is your total cost basis. Divide this amount by the total number of shares that you now own. The resulting figure is your average cost per share.
You will then subtract the average cost/share $ amount from the price per share that you sell for, and that will be your capital gain (or loss) per share. Times number of shares sold is the total gain or loss. If you include all your shares (both long and short term) in this calculation, that is the single category method. You will have the same cost basis for all shares, although the short term and long term shares will be taxed at separate rates.

However, in certain circumstances you may want to go to the trouble of separating your long term and short term shares into separate sales and calculate the cost basis of each group separately. Say, if by separating the two groups, and calculating an average cost basis for each group, you would be selling one of the groups at a loss or at a significantly smaller gain and so reducing the total amount of tax owed. This would take some time to figure out but still is not that hard.

    Bookmark   January 4, 2012 at 4:36PM
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