How to Calculate Capital Gains/Losses on Mutual Fund Investments

Mutual fund managers may decide to sell profitable stocks during random times throughout the year based on performance, market outlook, profit-taking and other factors. If this happens, the mutual fund will distribute profits to you in the form of capital gains distributions. Any capital gains you get will be reported on IRS form 1099-DIV. Distributions of capital gains are taxed at long term capital gains tax rates no matter how long you have held shares in the mutual fund. When selling shares of mutual funds, you will have to calculate capital gains/losses on each mutual fund you sell using a particular cost basis. If you have held a mutual fund for a long period of time, you will have a specific cost basis and different holding period for each shares of the fund you owned.
How to Calculate Capital Gains Distributions
The Internal Revenue Service (IRS) allows you to use 4 different accounting methods for calculating capital gains/losses. You can elect to choose the method that is most advantageous to you; based on the condition that you will stick to this method in the following years. The four accounting methods are:

• Actual Cost basis - Specific Identification
  
• Actual Cost basis - First in, first out
  
• Average Cost basis - Single category method
  
• Average Cost basis - Double category method

Example to Calculate Cost per Share Basis
We used an Excel template to calculate a sample cost per share basis. The initial investment of $12,000 was made on March 9th, 2009 that bought 383 shares. To calculate cost per share basis, we divide:
Cost per Share Basis = Buy Price / # of Shares
Cost per Share Basis = $12,000 / 383.56 = $31.37
To calculate cost per share basis for the entire set of transactions, we total up the Buy prices, total # of shares and divide the 2 together to arrive at the average cost per share basis.

by;Hussein