Basis for sale of inherited mutual funds after a couple years and mutual fund reinvesting

[Matilda]

I inherited four American Funds in 2023.  I know the basis of the original inheritance.  I did not touch them until I cashed them out end of 2025.  American funds automatically reinvests so my amount of shares has grown.  The 1099B has short term and long term gains for each fund due to the reinvesting.  I know that the basis is the date of death value of my mother.  Do I apply that basis to the reinvested shares as well even though they were technically purchased later.  And are all the shares long term even though the recent ones American funds reinvested in are listed as short term gains on the 1099B.

I think I adjust the 1099B to be all long term with the basis the day my mother died for all shares.  But I want to make sure.  If this is true - What records would I need to keep for the adjustment.  Thank You

[Hi Palms]

It doesn't matter whether or not you touched the funds, the basis is still the fair market value of the shares owned on the date of your mother's passing in 2023. 

Any shares that were acquired, in any manner, after that date have a new basis, which would be the value (purchase price or otherwise) on the date they were acquired.

So, you need to keep records of the FMV of the shares owned as of the date of your mother's passing and also the shares acquired (purchased and reinvested) after that date. Also, any shares that have not been held for longer than 1 year are short-term. 

[Matilda]

So I need to split the mutual fund into separate entries.  One for the original inherited shares, then one for each of the times they reinvested and bought more shares for me.  (every time the basis is different) The last time being a short term investment.  

And I must only put inherited for the original shares because inherited means the basis is set to date of death.   This is getting pretty complicated and won't match the 1099B that fidelity provided although I guess the total will.  Is there an easier way to do this?  I have 4 different mutual funds to do this for.

They put various for date acquired in the 1099-B,  then I guess average the basis out over all the shares - end result - total gain - should be the same as separating them by date except the first is inherited, the rest are reinvested.  

[Hi Palms]

---

@Matilda wrote:

So I need to split the mutual fund into separate entries.  One for the original inherited shares, then one for each of the times they reinvested and bought more shares for me.  (every time the basis is different)

---

That is correct and it can get complicated or a lot of work and there is really no simple way to handle a situation such as your situation.

Brokerage firms will make the adjustment (if they know) upon death (i.e., marked to FMV on the date of death) and then the shares renivested (which are the result of fund distributions) are "covered shares" and the reported figures should be accurate on the 1099-B. If the firm did not make the adjustment for the date of death, then the total will most likely not be accuate.