Yes, you add the prior income from dividends claimed on your return to increase the basis of the shares received and sold. If you sold from the mutual fund broker that is maintaining the fund you should have received a 1099-B for the sales amount and a statement from the broker as to what the basis per share should be.
If you did not receive the statement of basis, you can recreate the basis but, depending on how long you have been reinvesting the dividends the calculation could take some time and not without a fair share of frustration figuring the basis per share.
For the purposes of this example I will make the calculation simple:
Shares Purchased: 100
Price per share: $10
Total Invested: $1,000
Dividends claimed on form 1040: $100 per year for 10 years.
Total income claimed: $1,000
Original Cost: $1,000
Total basis when sold: $2,000 ($1,000 cost plus 10 years of income at $100 per year).
Now the complications come in for the reinvested dividends if additional shares of stock were purchased with the reinvested dividends. You must year by year calculate and recalculate the basis of each share of stock by the numbers of shares owned and the income which those shares produced. That is where the frustration may enter the picture.
I strongly suggest you approach whomever the broker for the mutual fund is to see if you can be sent a basis schedule for the shares you own and for the shares you have sold. In more than a few cases, it turns out that you break even or actually have a small capital loss on the sales of stock for which the dividends were reinvested.
How do I find a Stock's Basis
@twm49
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