2009 Tax Information
The cost basis of a mutual fund is essentially the price you pay at the time of purchase plus the price for any reinvested dividends, with certain adjustments. Cost basis is important because any gain or loss flows through to your tax return when you sell your shares in taxable accounts (other than retirement accounts).
When you purchase shares in a single transaction, cost basis may be relatively easy to calculate. But if you have purchased shares over time, paid different share prices, paid sales commissions, and reinvested dividends and long-term capital gain distributions, the calculation becomes more complex.
To determine cost basis on shares acquired currently, you and your tax professional may choose between two accounting methods, depending on your situation.
The specific identification method permits you to specify shares to be sold to potentially obtain the best possible tax treatment. You can use specific identification if you have not previously used the average cost method that is explained on this page.
The average cost method averages the purchase price of all your shares including reinvested dividends and calculates the gain or loss on the sale based on that average cost. The earliest shares purchased are deemed to be sold first for purposes of determining the holding period.
When you have used the average cost method for shares of a particular fund, you cannot subsequently change to the specific identification method without permission from the IRS. Also, you must indicate on your federal tax return if you are using the average cost method.
For shareholders that hold mutual funds directly with RiverSource, we provide a Cost Basis Statement, which calculates your cost basis using the average cost method. The statement shows both your average cost basis and the amount of capital gain or loss for shares redeemed during the year. The gain or loss reported has been adjusted for wash sales, if applicable. The statement also reflects any adjustment for sales load basis deferrals, if applicable. It will not reflect the special rules surrounding the treatment of losses on mutual fund shares held less than six months. If a long-term capital gain dividend was paid in that six month period, any short-term capital loss taken on the sale will become a long-term capital loss to the extent of the long-term capital gain dividend. If an exempt-interest dividend was paid in that six month period, any short-term capital loss will be disallowed to the extent of the exempt-interest dividend.
Arriving at the proper cost basis of your shares can be complex, and there are circumstances that may require additional adjustments to your cost basis and/or net capital gain or loss that we cannot determine, including cost basis information affected by transfers between clients (including inheritance, gift, divorce, distributions from a trust, etc.) or obtained through acquisitions, such as J. & W. Seligman & Co. Inc. For transactions related to any of these activities, review your own records and consult your tax advisor when preparing your tax return.
The Cost Basis Statement is not intended to be legal advice or tax advice. We strongly recommend that you consult with your tax advisor and/or your attorney regarding the information contained in this statement prior to it being used. Reading IRS Publication 564 Mutual Fund Distributions may also be helpful.
Under the new law, brokerage firms and mutual fund companies must report their customers’ cost basis, and whether any gain or loss is long- or short-term, to the shareholder and the IRS when securities are sold. The reporting requirements become mandatory for stocks acquired beginning in 2011, mutual funds acquired beginning in 2012 and other securities acquired beginning in 2013.
According to the new rules, if an investor changes brokers, the old broker must transfer all relevant cost basis data for the affected securities to the new broker within 15 days. Other options may be available for stock and mutual funds as these rules evolve.
In non-qualified accounts, as part of a tax-free merger, the cost basis of each affected shareholder's mutual fund account is carried over from the merged account to the acquiring account as part of the reorganization.
This information is for use with concurrent or prior delivery of a fund prospectus. Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. To learn more about this and other important information about each fund, download a free prospectus. The prospectus should be read carefully before investing.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Columbia Management Investment Advisers, LLC and its affiliates do not offer tax or legal advice. Consult with your tax advisor or attorney regarding your specific situation.
Not all products and all share classes are available through all firms.
RiverSource®, Seligman® and Threadneedle® mutual funds are distributed by Columbia Management Investment Distributors, Inc. (formerly known as RiverSource Fund Distributors, Inc.), member FINRA and managed by Columbia Management Investment Advisers, LLC (formerly known as RiverSource Investments, LLC). Threadneedle mutual funds are subadvised by Threadneedle International Limited, an affiliate of Columbia Management. Seligman is an offering brand of Columbia Management.