Determining Cost Basis

[rcherinka]

I have a fund that was recently transferred from one broker account to another, and we are trying to update my cost basis.   I have the basis since 2012.  However, the basis prior to that did not transfer over.  What is the tax rule on calculating a mutual fund tax basis.  Can I use average cost or am I required to manually try to recreate it if I can recover the history (which may be hard to do given the long history)?

[Mike9241]

transferring a mutual fund from one broker to another does not change its tax basis. how can you properly report their basis, except using specific identification, since you don't seem to know the basis for the earliest shares acquired? didn't you statements from the previous broker properly reflect the tax basis.

guidance is provided in IRS PUB 550 starting on page 67 as to allowable methods 

https://www.irs.gov/pub/irs-pdf/p550.pdf 

[rcherinka]

Thank you for your response.  Unfortunately the pervious broker did not have the full history as it was transferred to them back in the 93.   So, we have the details from 93 and those were transferred to the current broker.  Its the longer term history that is the issue as that was before they had the statements online.  

[Opus 17]

I'm not sure we can help you, if you don't have your own records.

I believe your basis can be increased, if the funds pay dividends that are reinvested in the fund, but they are also declared on your 1099-DIV and you pay tax on them, they increase your basis.  (Dividends that are used to buy new shares, that are not taxed to you at the time, do not increase your basis.)

If you bought shares over several years, and you don't have records, and the broker doesn't have records, I don't know what to tell you.  Seems like the broker's job to keep track, whether they used paper ledgers or computers or an abacus.  I might contact whoever regulates brokers in your state, or the SEC, and try to poke them to do a better job for you.

If audited, the IRS does not have to allow any basis you can't prove, so you should at least make the best, most reasonable estimates you can, and write them down with an explanation.  You can update it with better facts if you get them.

[Mike9241]

you can't use average cost if you don't know the cost of all the shares you hold. you are left with specific identification. if you sell notify the broker which shares you are selling

Specific share identification. If you adequately identify
the shares you sold, you can use the adjusted basis of
those particular shares to figure your gain or loss.
You will adequately identify your mutual fund shares,
even if you bought the shares in different lots at various
prices and times, if you:
1. Specify to your broker or other agent the particular
shares to be sold or transferred at the time of the sale
or transfer, and
2. Receive confirmation in writing from your broker or
other agent within a reasonable time of your specifica
tion of the particular shares sold or transferred.
You continue to have the burden of proving your basis
in the specified shares at the time of sale or transfer

some other things that night be useful

1) if you make cash donations, you can contribute this stock instead - (using pre 94 fifo)  -which means. cost is irrelevant, you get a deduction for their FMV on the date of donation. there are rules concerning donations that must be adhered to such as getting an acknowledgement from the charity 

2) this suggestion has risk because the IRS could take the position if you don't know the actual cost then it is zero.  you probably know how many pre-94 shares you hold. if you know the date of the first shares purchased you may be able to use an average of the price on that day and the same thing for the last shares purchased pre-94. average the two prices and multiply by the number of pre-94 shares. Yahoo has a website where you can look up historical prices and dividend payments.  if this is not feasible for lack of info you are sort of stuck with either specific identification or 1) above.