As a convenience, some brokers provide an average-cost basis calculation result for mutual fund shares sold.
If there was also a non-dividend distribution during the year (reduces basis on remaining shares), is it common for the broker to take that into account for the year-end calculation? Or would the basis number calculated by the brokerage be further reduced by the non-dividend distribution (1099-DIV box 3) allocated by number of shares owned at the time of distribution?
-Mark Bole
The average cost basis provided by the investment company does not include non-dividend distributions. The taxpayer has to make the calculation to adjust basis for the distribution.
Here is Fidelity's explanation.
Return of capital A return of capital occurs when a fund's distributions exceed its earnings in a fiscal year. Distributions are not taxable when they exceed earnings, and are reported on Form 1099-DIV. The total basis of the position is reduced by the amount of the non-taxable distributions, but they do not affect the basis per share of existing shares.
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