Help with cost basis for funds

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boater07
Posts: 555
Joined: Sun Apr 15, 2007 7:44 pm
Location: Northwest

Help with cost basis for funds

Post by boater07 » Tue Sep 10, 2019 3:30 pm

I'm not clear what the best method is for taking Div/CG in taxable bond fund.
I typically transfer to MM to avoid tracking small additions. Does it really matter?

dbr
Posts: 30079
Joined: Sun Mar 04, 2007 9:50 am

Re: Help with cost basis for funds

Post by dbr » Tue Sep 10, 2019 3:34 pm

boater07 wrote:
Tue Sep 10, 2019 3:30 pm
I'm not clear what the best method is for taking Div/CG in taxable bond fund.
I typically transfer to MM to avoid tracking small additions. Does it really matter?
Mostly it is a matter of your own preference and convenience.

The one time it matters is that it might cost more in taxes to reinvest the distribution and then take money out by selling shares at average cost basis.

Topic Author
boater07
Posts: 555
Joined: Sun Apr 15, 2007 7:44 pm
Location: Northwest

Re: Help with cost basis for funds

Post by boater07 » Tue Sep 10, 2019 6:06 pm

Thanks DBR
I don't understand how a distribution affects average cost . Isn't the Div taxed in the current year?
I would assume it would then be subtracted from cost basis.
Sorry to be so dense but I have not done anything in a taxable account for many years. I'll be fortunate
this year of not spending all my RMD's and cashed in Savings bonds. I hit the 17 year doubling :moneybag

dbr
Posts: 30079
Joined: Sun Mar 04, 2007 9:50 am

Re: Help with cost basis for funds

Post by dbr » Tue Sep 10, 2019 6:11 pm

boater07 wrote:
Tue Sep 10, 2019 6:06 pm
Thanks DBR
I don't understand how a distribution affects average cost . Isn't the Div taxed in the current year?
I would assume it would then be subtracted from cost basis.
Sorry to be so dense but I have not done anything in a taxable account for many years. I'll be fortunate
this year of not spending all my RMD's and cashed in Savings bonds. I hit the 17 year doubling :moneybag
The distribution affects cost basis if it is reinvested. At that point the money reinvested is added to the cost basis. The only way you affect the cost basis is by buying something. The issuance of a distribution alone does not affect the cost basis.

If you were then to turn around and sell that exact lot then the only tax paid would be that on the distribution. If you sell using average cost basis the cost basis for those shares might be less than the cost basis of the exact lot bought by the distribution and there would be some capital gain. The opposite would be true if the average basis were more than the basis for that exact lot.

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