Calculating average cost basis (single category method) for a mutual fund

March 17, 2008 12:26 AM

Need help with calculating average cost basis for a mutual fund that I recently closed.

I have an Alger mutual fund that was opened 13 years ago, and closed recently. I'm trying to figure the average cost basis for the fund at the time when it was closed. I tried calling the mutual fund company but they said since the account was closed, and I no longer have shares in it, they can no longer provide me the cost basis (sigh...silly policy), but they offered to send me the transaction history so I can calculate it myself.

I just need help with the algorithm used in calculating the average cost basis (single category method). I understand the basic calculation: average cost = (your total cost of the shares you own) / (number of shares you own). But I'm getting tripped up when I look through the transaction history and see exchanges that take money and shares out of the fund.

Given the sample transaction history below, can you provide the average cost basis at the the time the account was closed, and explain how you came up with it?

12/29/95 - Used $1000 to purchase 100 shares @ share price of $10
12/29/99 - Reinvest $300 dividend to purchase 20 shares @ $15. Total shares owned = 120
12/29/06 - Exchange out $400 @ $20 into a different Alger fund. Total shares owned = 100.
12/29/07 - Used $625 to purchase 25 shares @ $25. Total shares owned: 125
12/29/08 - Closed account. Share price is $30. Total shares owned: 125

Is the average cost ($1000 + $300 + $625) / (100 + 20 + 25) = $13.28
Or is it ($1000 + $300 - $400 + $625) / (100 + 20 - 20 + 25) = $12.20
Or is it something else?

posted by jaimev to Work & Money (4 answers total)

So what matters is how much you spent to purchase the specific shares that you are selling. If you were selling the $10 shares then, then you have 80 of those left, and average cost basis for the remaining shares is:

($800 + $300 + $625) / (80 + 20 + 25)

or if you sold the $15 shares, you don't have any of those left, so it's just:

($1000 + $625) / (80 + 25)

When you filed your 2006 taxes, you specified either $10 or $15 as the cost basis for the shares you sold back then. Be consistent with that.
posted by sergent at 12:43 AM on March 17, 2008

Response by poster: I just wanted to make corrections to my example:
12/29/08 - Closed account.
should be
12/31/07 - Closed account.
I'm trying to calculate cost basis for the 2007 tax year.

And this ...
12/29/06 - Exchange out $400 @ $20 into a different Alger fund.
was not actually me selling these stocks. Alger moved the money into an a "A" class fund which still exists, and was also closed at the end of 2007. The rest of the shares I described were left in a "B" class fund.

To clarify, I'm looking for the cost basis of the 125 shares that existed in the account when I closed it.
posted by jaimev at 1:08 AM on March 17, 2008

So we don't know which shares those were from this information. But you probably paid capital gains on that back then, and they told you the cost basis - see if you can find your tax paperwork from 2006.
posted by sergent at 1:30 AM on March 17, 2008

Also, generally speaking, if this gets too confusing, you can always use a lower number (pay higher tax) and not get in trouble for it. If the difference is small, and the situation is considerably more complex than this one, it might not be worth your time...
posted by sergent at 1:35 AM on March 17, 2008