How to Calculate Mutual Fund Cost Basis With Dividends

How to Calculate Mutual Fund Cost Basis With Dividends
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When an investment is sold, the taxable profit or loss is determined by calculating the difference between the sale price and the cost of the investment. Mutual funds provide a challenge in this calculation because fund dividends can be automatically reinvested into more shares of the fund. The reinvested dividends change the investor's cost and add additional calculations to determine the cost basis.

Collect the year end mutual fund statement for each year you have owned the fund. The year end statement provides all of the account activity for the year including investments and dividends paid.

Add up all of you investment amounts in the fund. If you made a one time investment to open the account, this is an easy step. If you have made regular investments you will need to total the dollar amount of all investments.

Total up the dollar amounts of the reinvested dividends for the time you have owned the mutual fund. Reinvested dividends are your own money earned from the fund and reinvested into more shares.

Add together your results for invested money and reinvested dividends. This total is your dollar cost basis in the mutual fund.

Divide the total amount invested by the total number of shares in your mutual fund account. The result is the cost basis per share. This number will be used if you sell a portion of your account and need to calculate the cost basis on the shares sold.


  • Reinvested dividends increase you cost basis of a mutual fund account. This reduces you taxable gain when you sell mutual fund shares. A lot of buying and selling in a mutual fund account can make cost basis calculation complicated. A spreadsheet that recalculates the cost basis with every purchase or sale will keep you calculations up to date and accurate.


  • You pay taxes on you mutual funds every year when they are paid and reinvested. If you do not add them into your fund cost basis you end up paying double taxes on the dividends.