Home Page link  

Calculating a cost basis...

  
Groups | Search | About
User Password
Register Now! Lost Password?

Taxes General Forum - Tax professionals meeting place and answers to queries. (Moderated)

 Post an article  get this group's latest topics as an RSS feed add this group's latest topics to your My MSN content add this group's latest topics to your My Yahoo content  add this group's latest topics to your Google content  YahooMyWeb Yahoo!  Google Google  Windows Live Favorites Windows Live  del.icio.us del.icio.us  digg digg  Add to Netscape Netscape
Subject Author Date
Calculating a cost basis... chrisexv6 03-15-2007
Posted by Seth Breidbart on March 16, 2007, 12:52 pm
Please log in for more thread options
> She has now sold 3 of the funds, and we're trying to
> determine the cost basis (to get an idea of the tax
> implications). My (almost complete) understanding is the
> following:
>
> taxable amount from sale = sale price - (original investment
> + reinvested dividends)
>
> My question is where the capital gain distribs fall into
> place.

If the capital gains were paid to you in cash, they don't
affect the basis at all. If they were reinvested into the
funds, the amount reinvested is part of the basis.

That is, they're treated exactly like dividends for this
purpose (the only difference being the tax rate).

Seth

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Benjamin Yazersky CPA on March 16, 2007, 12:52 pm
Please log in for more thread options
> I see there are a TON of cost basis questions on this group,
> but I couldnt quite get the answer I needed.
>
> My wife has funds that she's held for a long time (15 years
> or so). I *know* the dividends were reinvested, but she's
> also had capital gains distributions reported for several of
> those years. Not being a tax pro, it looks to me like the
> capital gain distribs were listed as part of her gross
> income on the 1040.
>
> She has now sold 3 of the funds, and we're trying to
> determine the cost basis (to get an idea of the tax
> implications). My (almost complete) understanding is the
> following:
>
> taxable amount from sale = sale price - (original investment
> + reinvested dividends)
>
> My question is where the capital gain distribs fall into
> place. It makes sense (to me, anyway) that they would be
> another amount subtracted from the above calculation,
> because they've already had taxes paid on them, thereby
> reducing the taxable "profit" from the sale of the funds
> (profit in quotes because Im assuming she ended up making
> $$$).
>
> Is my logic correct (provided the capital gains distribs
> WERENT reinvested every year)?
>
> If they WERE reinvested, I assume they are then rolled into
> the "reinvested dividends" number in the above calculation?

all reinvested dividends (including capital gain divs) are
added to cost basis

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Barry Margolin on March 16, 2007, 12:52 pm
Please log in for more thread options

> I see there are a TON of cost basis questions on this group,
> but I couldnt quite get the answer I needed.
>
> My wife has funds that she's held for a long time (15 years
> or so). I *know* the dividends were reinvested, but she's
> also had capital gains distributions reported for several of
> those years. Not being a tax pro, it looks to me like the
> capital gain distribs were listed as part of her gross
> income on the 1040.
>
> She has now sold 3 of the funds, and we're trying to
> determine the cost basis (to get an idea of the tax
> implications). My (almost complete) understanding is the
> following:
>
> taxable amount from sale = sale price - (original investment
> + reinvested dividends)

+ reinvested capital gains

> My question is where the capital gain distribs fall into
> place. It makes sense (to me, anyway) that they would be
> another amount subtracted from the above calculation,
> because they've already had taxes paid on them, thereby
> reducing the taxable "profit" from the sale of the funds
> (profit in quotes because Im assuming she ended up making
> $$$).

The fund reduced the NAV at the time they made the
distributions, so the capital gain at sale time has already
been reduced, and that avoids the double taxation.

> Is my logic correct (provided the capital gains distribs
> WERENT reinvested every year)?
>
> If they WERE reinvested, I assume they are then rolled into
> the "reinvested dividends" number in the above calculation?

Correct.

--
Barry Margolin, barmar@alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Andrew on March 17, 2007, 6:30 am
Please log in for more thread options
Barry Margolin wrote:

> The fund reduced the NAV at the time they made the
> distributions, so the capital gain at sale time has
> already been reduced, and that avoids the double
> taxation.

Barry - dumb question I've wondered about for a while. If
the NAV is reduced by the amount of the capital gain (which
is true), so what's the big deal about receiving them if the
value of what you own after the distribution is the same?
Or is that true?

Regards

Andrew

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Rich Carreiro on March 18, 2007, 2:18 am
Please log in for more thread options

> Barry - dumb question I've wondered about for a while. If
> the NAV is reduced by the amount of the capital gain (which
> is true), so what's the big deal about receiving them if the
> value of what you own after the distribution is the same?

The big deal is that you get taxable income but no
economic gain.

Assume you buy 1,000sh of a fund at $20/sh. Total
value is $20,000. The very next day the fund declares
a $2/sh distribution and the NAV drops to $18/sh because
of it.

If you don't reinvest distributions, you have
$18,000 ($18 x 1000sh) of fund + $2,000 cash = $20,000

If you do reinvest distributions, you have
$20,000 ($18 x 1111.111sh) of fund/

Either way you have $2,000 ($2 x 1000sh) of taxable
income (and a $2,000 unrealized capital loss).

If you had waited one more day to buy the fund,
you'd be in the same economic position but would
have escaped $2,000 of taxable income.

--
Rich Carreiro rlcarr@animato.arlington.ma.us

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Similar ThreadsPosted
Calculating cost basis on ESPP shares in a foreign stock January 23, 2007, 2:04 am
calculating stock basis - problems with applying FIFO April 9, 2007, 2:13 am
calculating stock basis - problems with applying FIFO April 11, 2007, 11:28 pm
Cost Basis February 8, 2007, 11:51 pm
cost basis February 10, 2007, 6:05 am
Schedule D and Cost-Basis help February 25, 2007, 5:00 am
Cost basis on collectibles November 28, 2007, 5:56 pm
cost basis of bonds February 17, 2008, 5:11 pm
House Cost Basis March 2, 2008, 8:32 pm
Stock Cost Basis April 23, 2006, 1:43 am

Contact Us | Privacy Policy
This site is not affiliated with Intuit - makers of Quickbooks and Quicken software
This site is not affiliated with Sage Software - makers of Peachtree accounting software
XML SitemapXML Sitemap