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We purchased a mutual fund in 2001 and reinvested earnings in the fund. A few years ago we took dividends directly. If we sell it now, how are capital gains taxed?
We clearly have more shares and the basis changes based on the reinvestment.
Unfortunately, tracking the basis for your investment isn't as simple as that. Each of the shares purchased through reinvestment has a basis of what was spent at the time the funds were reinvested. You will have to track twenty years of purchases in the mutual fund in order to determine what your actual basis in the fund is.
Hopefully your broker has tracked these investments for you so that they will just issue you a 1099 with the calculation already done for you.
Gain or loss is calculated by subtracting the value of the shares sold from the sale price. The net amount is the gain or loss that will be reported on your tax return.
If it is a net loss the maximum that you will be able to deduct in the current tax year would be $3000. Any other losses would roll forward into future tax years.
If it is a net gain then the entire amount will be taxed in the year of he sale. All shares purchased more than a year and a day ago will be taxed as long-term-capital gains. Any shares purchased less than a year ago will be taxed as regular income.
Wait for the 1099-B from the mutual fund to see if it has everything you need. The requirement for them to provide that info predates your original 2001 buy date.
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