FAQ - Average Cost

Question

How can I record transactions using average cost?

Answer

In addition to FIFO and Specific ID, the IRS allows mutual fund investors to elect Average Cost as an alternative sell methodology. When you use Average Cost, the total cost of your mutual fund position is averaged across all lots, and the Average Cost figure is used to calculate gain/loss when you sell. The holding date of the sold lot is used to determine whether the gain/loss is long or short term, just like FIFO and Specific ID. Your Average Cost does not change when you sell, only when you buy additional shares. Once you elect Average Cost, you must continue to use this sell method for this specific fund until you have sold out of your position.

If you wish to maintain Average Cost in your GainsKeeper account for a specific fund, you can do so when recording your sells. When you are recording a sell for a mutual fund from the Manually Record Trades page, enter a Mutual Fund - Record Sell by Average Cost Transaction. GainsKeeper will automatically recalculate your holdings and gain/loss based on Average Cost. You can also import Average Cost sell transactions.

Average cost will be maintained for this mutual fund as you continue to record your transactions until you completely sell out of this fund from all accounts. GainsKeeper will also continue to adjust your Average Cost positions for corporate actions and wash sales. GainsKeeper currently handles single-category Average Cost tracking.

For additional information on Average Cost, check out Fairmark Press, an excellent resource for investment tax education.

Example

Click here to view an example of Average Cost.