Selling mutual fund shares

Hi,

I'm buying a mutual fund on a monthly basis. I recorded accuratly all
transactions in Money. In one of the investment report where you can find the
average basis cost (important if you use the average basis method for tax
calculations), I was always able to match the average with a good old Excel
spreadsheet.

Now, I just sold a few units of the fund. When I entered the transaction,
Money asked me which method I would like to use: I chose the average basis
cost.

According to the IRS.gov web site, for the "Remaining shares: The average
basis of the shares you still hold after a sale of some of your shares is the
same as the average basis of the shares sold."

For a tax purpose, your capital gain is the number of shares sold, times the
difference of the selling price minus the average cost basis.

After I entered the selling transaction, if I go back to the investment
report to look at the average basis cost, the average went up!

So my first question is: Does anyone understand what's going on here?
My second question is: Is there a way to find details about how Money did
the calculation for my specific case? Or for a general example?

Thank you.

Stageman
Tue Jan 24 12:15:14 CST 2006

Hi again,

I think I discovered what's happening. But another question came up.

When I'm selling the units, Money is asking which method I want to use
(First-in-First-Out, i.e. FIFO, or the best method between FIFO/Average Cost
method). Since the fund price increased since the first time I bought unit, I
believe that Money used the FIFO.

Since Money is using the FIFO method, the program is selling my cheapest
shares, thus my average cost is going up.

But my new question is... Because Money is selling the cheapest shares, my
capital gain is thus higher, which means that I will pay more taxes. So is it
really the best method? I guess because my average cost went up as well, my
future sell of shares will have a higher average cost and thus a lower
capital gain.

Can I switch from one method to the other as much as I want? My tax advisor
will know that, but maybe someone here knows.

Thanks.


"Stageman" wrote:

> Hi,
>
> I'm buying a mutual fund on a monthly basis. I recorded accuratly all
> transactions in Money. In one of the investment report where you can find the
> average basis cost (important if you use the average basis method for tax
> calculations), I was always able to match the average with a good old Excel
> spreadsheet.
>
> Now, I just sold a few units of the fund. When I entered the transaction,
> Money asked me which method I would like to use: I chose the average basis
> cost.
>
> According to the IRS.gov web site, for the "Remaining shares: The average
> basis of the shares you still hold after a sale of some of your shares is the
> same as the average basis of the shares sold."
>
> For a tax purpose, your capital gain is the number of shares sold, times the
> difference of the selling price minus the average cost basis.
>
> After I entered the selling transaction, if I go back to the investment
> report to look at the average basis cost, the average went up!
>
> So my first question is: Does anyone understand what's going on here?
> My second question is: Is there a way to find details about how Money did
> the calculation for my specific case? Or for a general example?
>
> Thank you.