When somebody has held mutual funds for a number of years and the dividends were reinvested, and then sells out, are the reinvested dividends "already added" to the average cost ? Would he have to add the additional amount to the basis in figuring the gain/loss?
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Reinvested dividends add to the cost basis of mutual funds. Usually, if the broker supplies you with an average cost basis for a particular fund, the reinvested dividends will be included in that basis. However, since brokers currently are not required to supply you with this information on the 1099, you may want to double check to make sure that they are in fact included in the average cost basis. -
I think it would depend on how the broker reports on his statements, but I know on my account with Fidelity, the reinvested dividends are added into the cost on my statements. There is an option on my online viewing to "view lots" and it will show the cost basis of each lot of shares purchased by dividend reinvestment and the date of purchase.Comment
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Zeros
I believe the client has already paid taxes on his dividends each year. He received a 1099-DIV based on fund performance which is why it is added back to his cost basis.
LarryComment
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