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Q2006 Cap Gain distribution adds to cost basis?

  
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Q2006 Cap Gain distribution adds to cost basis? me@home.com 09-13-2006
Posted by me@home.com on September 13, 2006, 12:59 am
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 I guess I'm confused. I just noticed because of a larger
distribution than normal that a LT cap gain distribution from a
mutual fund added the distribution amount to the cost basis. I would
think my basis shouldn't change at all since I should be ending up
with the same total market value - more shares yes but at a lower
price which reduces the market value of each share. I haven't really
added anything to the basis --- or have I?
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Posted by Fred Smith on September 13, 2006, 3:17 am
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 Quicken is correct.

A capital gain distribution is a taxable event. As you will be paying tax on the
distribution, your cost base needs to increase to avoid double taxation.

I agree the value of your shares hasn't changed (because the price drops in
proportion to the distribution), but the tax-paid portion has increased.

--
Regards,
Fred


>I guess I'm confused. I just noticed because of a larger
> distribution than normal that a LT cap gain distribution from a
> mutual fund added the distribution amount to the cost basis. I would
> think my basis shouldn't change at all since I should be ending up
> with the same total market value - more shares yes but at a lower
> price which reduces the market value of each share. I haven't really
> added anything to the basis --- or have I?
> --
> ----------------------------------------------
> Posted with NewsLeecher v3.0 Final
> * Binary Usenet Leeching Made Easy
> * http://www.newsleecher.com/?usenet
> ----------------------------------------------
> -----------------
> www.Newsgroup-Binaries.com - *Completion*Retention*Speed*
> Access your favorite newsgroups from home or on the road
> -----------------



Posted by danbrown on September 14, 2006, 1:25 pm
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me@home.com wrote:
> I haven't really
> added anything to the basis --- or have I?

At some point, you told you m/f company to reinvest distributions.
Others decided to take the same distributions from the same fund in
cash. With your reinvestments, you bought additional shares ... thus
your cost basis increased by the amount of the distributions received.

The market value of the fund is unrelated to the cost basis.

db


Posted by DP on September 16, 2006, 1:54 am
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The two answers you've already gotten are fine. But if you're still having
trouble getting your mind around this, another way to approach it is as
follows:

You originally bought mutual fund at at a total cost of X dollars.
You were "given" Y dollars in the distribution, which you then used to buy
more shares.
So the total amount of money you have put out to buy shares is X+Y. It
doesn't matter where the money for the Y purchase came from, it's still
money used to buy stock in the fund.











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