Mutual Funds

If you sell mutual fund shares that were acquired at different times, you must know the corresponding basis to determine your gain or loss. One method is the specific identification method where you specifically identify the shares sold. Another choice is the Average cost method which takes an average of all shares in the fund. Another method is the First in First out FIFO method in which the shares sold are from the earliest to the latest owned. If you have documentation of the history of the share ownership, you have an option to any of the methods to calculate either a lower or higher gain or loss on your sale. Speak to your local CPA about these tax savings strategies.

Fund managers buy and sell stocks throughout the year. When the managers sell stocks with a large gain, that share of the capital gain must be allocated to you and everyone else in the fund, even though the balance of the portfolio includes unrealized losses and the fund is down in value.

Generally, capital gain distributions from mutual funds are reported to you on Form 1099-DIV box 2a. You will then report this amount as long-term capital gains on IRS Schedule D line 13.

The good news is that you don't need to compute your gains or losses on mutual funds that are held in an IRA. The bad news is all distributions from deductible IRAs are taxable- as ordinary income - in the year of the distribution. There is no capital gain treatment for gains on investments in an IRA.