Irs Publication 564 - Mutual Fund Distributions

Table 3. Example of How To Figure Basis of Shares Sold

Example 3. The facts are the same as in

Example 1, except that you bought an additional

This is an example showing two different ways to figure basis. It compares the cost basis using

150 shares at $14 a share on September 19,

the FIFO method with the average basis using the single-category method.

2003, and then sold 50 shares on December 16,

2003. The total adjusted basis of all the shares

Date

Action

Share Price

No. of Shares

Total Shares

you owned just before the sale is $4,500, figured

Owned

as follows.

02/05/02

Invest $4,000

$25

160

Basis of remaining shares ($16 x

08/06/02

Invest $4,800

$20

240

400

150) . . . . . . . . . . . . . . . . . . .

$2,400

Cost of shares acquired 9/19/03

12/17/02

Reinvest $300

($14 x 150) . . . . . . . . . . . . . . .

$2,100

dividend

$30

410

Total adjusted basis of all shares

owned ($2,400 + $2,100) . . . . .

$4,500

09/30/03

Sell 210 shares

$32

210

200

for $6,720

The basis of the shares sold is $750 ($15 a

share), figured as follows.

COST BASIS

To figure the basis of the 210 shares sold on 9/30/03, use the share

(FIFO)

price of the first 210 shares you bought, namely the 160 shares you

Enter the total adjusted basis of all

purchased on 2/5/02 and 50 of those purchased on 8/6/02.

the shares you owned in the fund

$4,000 (cost of 160 shares on 2/5/02)

just before the sale. (If you made

+ $1,000 (cost of 50 shares on 8/6/02)

an earlier sale of shares in this

Basis = $5,000

fund, add the adjusted basis of any

shares you still owned after the

last sale and the adjusted basis of

AVERAGE BASIS

To figure the basis of the 210 shares sold on 09/30/03, use the

any shares you acquired after that

(single-category)

average basis of all 410 shares owned on 9/30/03.

sale.) . . . . . . . . . . . . . . . . . . . . $4,500

$9,100 (cost of 410 shares)

Enter the total number of shares

÷ 410 (number of shares)

you owned in the fund just before

$22.20 (average basis per share)

the sale. . . . . . . . . . . . . . . . . . .

300

Divide the amount on line 1 by the

$22.20

× 210

amount on line 2. This is your

average basis per share. . . . . . . $

Basis = $4,662

Enter the number of shares you

sold. . . . . . . . . . . . . . . . . . . . .

Enter the total adjusted basis of all

How to figure the basis of shares sold. To

Multiply the amount on line 3 by

the shares you owned in the fund

figure the basis of shares you sell, use the steps

the amount on line 4. This is the

just before the sale. (If you made

in the following worksheet.

basis of the shares you sold. . . $ 750

an earlier sale of shares in this

fund, add the adjusted basis of any

Enter the total adjusted basis of all

Double-category method. In the double-cat-

shares you still owned after the

the shares you owned in the fund

egory method, all shares in an account at the

last sale and the adjusted basis of

just before the sale. (If you made an

any shares you acquired after that

time of each disposition are divided into two

earlier sale of shares in this fund,

sale.) . . . . . . . . . . . . . . . . . . . . $4,800

categories: short-term and long-term. Shares

add the adjusted basis of any

held 1 year or less are short-term. Shares held

shares you still owned after the last

Enter the total number of shares

sale and the adjusted basis of any

longer than 1 year are long-term.

you owned in the fund just before

shares you acquired after that sale.) $

The basis of each share in a category is the

the sale. . . . . . . . . . . . . . . . . . .

300

average basis for that category. This is the total

Enter the total number of shares

Divide the amount on line 1 by the

remaining basis of all shares in that category at

you owned in the fund just before

amount on line 2. This is your

the time of disposition divided by the total shares

the sale. . . . . . . . . . . . . . . . . . . .

average basis per share. . . . . . . $

in the category at that time. To use this method,

Divide the amount on line 1 by the

you specify, to the custodian or agent handling

Enter the number of shares you

amount on line 2. This is your

sold. . . . . . . . . . . . . . . . . . . . .

150

your account, from which category the shares

average basis per share. . . . . . . . $

are to be sold or transferred. The custodian or

Multiply the amount on line 3 by

agent must confirm in writing your specifica-

Enter the number of shares you

the amount on line 4. This is the

sold. . . . . . . . . . . . . . . . . . . . . .

tion. If you do not specify or receive confirma-

basis of the shares you sold. . . $2,400

tion, you must first charge the shares sold

Multiply the amount on line 3 by the

against the long-term category and then charge

Remaining shares. The average basis of

amount on line 4. This is the basis

any remaining shares sold against the

the shares you still hold after a sale of some of

of the shares you sold. . . . . . . . . $

short-term category.

your shares is the same as the average basis of

Example 1. You bought 300 shares in the

the shares sold. The next time you make a sale,

Changing categories. After you have held

LJP Mutual Fund: 100 shares in 2000 for $1,000

your average basis will still be the same, unless

a mutual fund share for more than 1 year, you

($10 per share); 100 shares in 2001 for $1,200

you have acquired additional shares (or have

must transfer that share from the short-term

($12 per share); and 100 shares in 2002 for

made a subsequent adjustment to basis).

category to the long-term category. The basis of

$2,600 ($26 per share). Thus, the total cost of

a transferred share is its actual cost or other

your shares was $4,800 ($1,000 + $1,200 +

Example 2. The facts are the same as in

basis to you unless some of the shares in the

$2,600). On May 16, 2003, you sold 150 shares.

Example 1, except that you sold an additional 50

short-term category have been disposed of. In

The basis of the shares you sold is $2,400 ($16

shares on December 15, 2003. You do not need

that case, the basis of a transferred share is the

per share), figured as follows.

to recompute the average basis of the 150

average basis of the undisposed shares at the

shares you owned at that time because you

time of the most recent disposition from this

acquired or sold no shares, and had no other

category.

adjustments to basis, since the last sale. Your

basis is the $16 per share figured earlier.

Making the choice. You choose to use the

average basis of mutual fund shares by clearly

showing on your income tax return, for each

Page 8

Irs Publication 564 - Mutual Fund Distributions - 2003 Page 8

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