How to Calculate the Cost Basis for Mutual Funds
If you make a profit from your investments, it is referred to as "capital gains" in the financial and taxation world. These capital gains are subject to a tax. In order to determine the exact amount of capital gain, you must first calculate the cost basis or the original price of the asset at the beginning of the year. For a mutual fund, this calculation can be a little tricky, since mutual funds pay dividends which are then reinvested back into the fund.
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Instructions
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Determine the number of shares of the mutual fund you currently own. Let's say you own 100 units of a fund.
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Determine the original purchase price of the shares. Let's say, according to your account statement, the shares were purchased at $10 per share.
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Determine the total cost of all shares by multiplying the number of shares purchased by the original cost. The calculation is: 100 x $10 = $1,000.
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4
Determine the amount the fund pays in dividends per share every year. Let's say the fund pays a dividend amount of $.40 per share. The dividend amount is automatically reinvested back into the fund.
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Calculate the amount you are to receive in dividends by multiplying the number of shares owned by the dividend amount. The calculation is: 100 x .$.4 = $40.
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6
Determine the current price of the fund. Let's say the current price of one unit in the fund is $20.
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Calculate the number of extra shares you own through reinvested dividends. Divide the dollar amount of dividends paid by the current share price. The calculation is: $40 / $20 = 2.
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Calculate the total number of shares you now own. Add the number of shares originally purchased to the number of shares acquired through reinvested dividends. The calculation is: 100 + 2 = 102.
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Calculate the cost basis. Divide the new total cost of the shares (original cost plus dividend payment received) by the number of shares currently owned. The calculation is: $1,040 / 102 = $10.20.
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