Tax Law (Questions About Taxes)/Cost or other basis


Hello John,

In 2013 I sold a Mutual Fund after having owned it since 1990. It was obtained through Paine Weber but after several years I transferred the account direct to the Fund company. In the process and over the years, the trail for calculating cost basis has been lost. They sent me a 1099B which divided the sold shares into a few short-term covered shares which gives a cost in box 3 and the rest were noncovered shares for which no basis is given. I have all my tax forms from over the years so I know the dividends and capital gains (CGDs) received over the years. The dividends and capital gains were reinvested in more of the same fund. I am trying to do a good faith recreation of what the basis should be.

I paid taxes over the years on the dividends and capital gains. The complete sale therefore sold shares that were purchased with money that was taxed. My questions:
1. Are the shares that were obtained through reinvesting therefore exempt from taxation when the whole package is sold?
2. Or is the sum of all the dividends/CGDs added to the original purchase price to form the basis?
3. Or are the taxes that I paid over the years for the dividends/CGDs added to the original purchase price to form the basis?
4. Or none of the above?

I've tried unsuccessfully to find the answer in Publication 550. My sense of logic tells me that number 2 should be the way it is done. It seems that a valid analogy would be that they could have sent those proceeds to me each year and I could have sent it back to them to buy more shares. (I would have paid the same tax either way.) Done that way, the proceeds that I returned to them to buy additional shares clearly would have been the cost basis for those shares. But this is the government I'm dealing with.

Thank you for volunteering your expertise,


Thanks for your question.

Your cost basis includes your original purchase price of the shares plus the purchase price of the addition shares purchased with the dividends. #2 above.

You paid taxes on the dividends, so you will only pay tax now on any gain in excess of the purchase price.

Hope this helps.

John Stancil, CPA  

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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