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Tax Law (Questions About Taxes)/Capital gains on partial sale of mutual fund

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Question
Hi, John.

I'm also an expert on this site. I had a partial sale of a mutual fund last year for which the investment firm did not provide a basis because the original purchase was so long ago.

I'm confused about the basis. I put a lump sum in many years ago. The balance got to about five times that sum and was all dividends and reinvested gains. I never added anything more myself nor did I take out anything. I sold about half of it.

I do have all the details of everything that went into the account and was able to calculate the average cost per share. I then subtracted that from the actual cost per share when I sold off the chunk last year. I multiplied that times the number of shares. That gave me a capital gain of about $10,000. This was considerably less than using FIFO.

Here's my confusion. Every year the fund reports the capital gain for the year and I report it as income and pay income tax on it. It seems like that $10,000 capital gain that I now have to report is all capital gain that I already paid income tax on each year.

Am I not paying tax twice, given the way I've calculated? Am I allowed to somehow deduct the capital gains that I've already paid tax on over the years?

Thanks for any insight you can give.

Answer
Jay,

Thanks for your question.

The capital gains that you paid tax on is based on the capital gains realized by the mutual fund company from stocks that they sold. It is an oversimplification, but the price of the shares adjust for these gains. Meanwhile, when the stocks held by the mutual fund increase, the price of the shares increase. So the current price of the shares represents the value of the shares currently in the portfolio. Therefore, when you sell at a gain, that gain is the unrealized gains on the holdings of the mutual fund.

Hope this helps

John Stancil, CPA  

Tax Law (Questions About Taxes)

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John Stancil, CPA

Expertise

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 www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

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.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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