Calculating COA on Mutual Fund merger

[Anonymous]

I have held a mutual fund since the 80's which I have added to and subtracted from over time.  I used the ID method to sell shares back in the 90's when I sold a few shares, and I've added shares at various prices too.  The fund merged with another fund in April, 2017.  So all the shares I bought over the years were exchanged into the new fund.  They exited the old fund at $59.82 per share, exchanged for $29.57 per share into the new fund.

I'd like to sell those shares now but I can't figure out how to calculate COA.  I've seen some fomulas around for this, one of which says the COA is the FMV as of 1-31-2018.  If that's so, my COA will be substantially lower than I expected.  It seems too good to be true.  In any case, I don't want to create a tax problem here.  Any help would be appreciated.

[Anonymous_]

@Mike9241 

[Mike9241]

if it was a tax-free merger, then your basis in the new mutual fund is the tax basis you had in the old fund + the tax basis of shares acquired after the merger. 

They exited the old fund at $59.82 per share, exchanged for $29.57 per share into the new fund. This could be irrelevant. example say you had 100 shares of the old fund value at $5982.00 what you should have gotten is 202.30 shares of the new fund times  $29.57= $5982.01 that .3 share might have been redeemed since many mergers provide no fractional shares will be issued. 

if it was a fully taxable merger based on the example, the sale price back in 2017 would have been $5982 vs your cost in the old fund. the basis in the new fund would have been $5982 

or it could have been a part taxable/tax-free merger 

the best place to get more info is to contact the new fund. you should have gotten documentation before the merger which would have included a discussion of the tax consequences.. you may even be bale to find info on its website

[Anonymous]

Thanks for the response.  There was no taxable event as a result of the merger.  I think what you are saying is to calculate a cost basis prior to the merger, and again after the merger and add them together and subtract them from the sale proceeds?  That was how I was planning to do it.  What I really want to do is harvest CG here.  I want to sell all of the shares and turn right around and buy them back.  The overall sale will result in a profit, but a FEW of the shares are going to be more than the sale price.  I don't want to sell all this and then find out the IRS considers it a wash-sale because not all shares were sold for a profit. 

[fanfare]

It is going to depend on whether your fund purchase are being tracked as FIFO or "average cost".

If FIFO you have to look at your records to see how many shares are "at a loss".

See Pub 550 for how to inform your fund custodian or broker that you want to use "average cost" before you take action.

OR

wait thirty one days before you do your repurchase of the security.

--

Shares bought one year or less before your SELL ALL SHARES are Short Term and have to be reported separately (Form 8949 Pg 1).

@Anonymous 

[Mike9241]

any purchase including reinvested dividends within 31 days of the sale would be subject to the wash sale rules. not sure why you want to harvest gains and then buy back the shares possibly at a higher price. 

[Anonymous]

The last reinvested dividends were in 2019 so short term concerns are not an issue. 

How about this:  Sell only the shares that came from the old mutual fund.  If the acquisition price to the new fund back in 2017 was $29.57, then any sale price above that should not trigger a wash-sale?  Then I simply add up all the old purchase amounts to figure COA?  Am I thinking correctly here?

[fanfare]

"add up all the old purchase amounts to figure COA"

That is the method of "average cost"

@Anonymous 

[fanfare]

Never mind.

That is FIFO, not average cost.

@Anonymous 

[fanfare]

if you sell FIFO exactly the number of new shares received for old shares. your cost basis is the cost of the old shares.

@Anonymous