Use average cost basis for mutual funds

Use average cost basis for mutual funds

Tip: For easier reading, click (above).

You might purchase shares of mutual funds regularly through paycheck deductions or other automatic transfers, resulting in a large number of buy transactions for the same investment. To make calculating your cost basis (The total purchase price you paid for an investment. The difference between what you sell an investment for and its cost basis determines your capital gain or loss. This can also apply to your house; all improvements you make to your property add to its cost basis.) easier when reporting capital gains (The profit you get by selling a stock, bond, or mutual fund for more than you paid.) for income tax returns, you might want to use the average cost basis method.

1 On the navigation bar (The strip at the top of the Money screen where you can click to go to the different areas in Money.) click Investments.

2 Highlight the mutual fund for which you want to set the cost basis method, click Go To, and then click Go to Details.

If you hold the same mutual fund in multiple accounts, you'll need to use the same cost basis method for it everywhere.

3 In Details, select the method you want from the Cost Basis field. You can choose from three options:

Actual Cost Basis Money calculates your capital gains based on the actual purchase price you paid for the mutual fund.
Average Cost Basis (Single Category) Money calculates your capital gains based on the average purchase price of the mutual fund over time. If you select this method, be advised that you should report all future transactions for this mutual fund as Average Cost Basis (Single Category) to ensure your capital gains are accurately reported for tax purposes.
Average Cost Basis (Double Category) Similar to the single category method, except the share cost basis is calculated differently depending on if the sale results in long-term gains or short-term gains. Money calculates an average cost for the long-term shares and sells all possible shares out of these long-term shares. Then for the remaining shares, the average cost for the short-term shares is used and the shares are marked as sold. This method is frequently used in Europe.

Things to keep in mind when using average cost basis for mutual funds

Once you've reported a capital gain on your taxes for mutual fund shares sold using the average cost basis method, you should not change your cost basis method for future sales of these shares due to income tax regulations.

If you still decide to change the calculation method, Money assumes that you've used this method for all the sell transactions you've ever made for this mutual fund, which could yield incorrect results in your portfolio. If you want to change methods, you should delete the current mutual fund, create a new mutual fund, then re-enter your buy and sell transactions using the new cost basis method.

The cost basis calculation method you choose in this dialog box will affect the capital gains shown in Capital Gains report in the Reports place.