To clarify the cost basis. When you calculate the cost basis when selling mutual funds is different than when you are selling individual stocks. You would use the Average Cost Basis instead of the first-in / first-out method.
To figure your gain or loss using an average basis, you must have acquired the shares (units) at various times and prices.
To calculate average basis:
- Add up the cost of all the shares you own in the mutual fund.
- Divide that result by the total number of shares you own. This gives you your average per share.
- Multiply the average per share by the number of shares sold.
The tax amount you would use when you complete Form 1116. is either the actual tax amount per your tax return or the amount you paid at the source (amount withheld). These amounts represent the estimated taxes on the sale of the mutual fund units you sold.
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