Denver Business Daily

How do I report a mutual fund that was rolled over to buy more mutual funds?

I started out with two mutual funds. When I transferred them to a new investment company those two funds were used to buy three new mutual funds. This year I sold all three funds. I'm using turbo tax and I understand how to report the three I sold but I really lost on how to report the first two I had and never actually got any cash for. There were no gains or losses on them so I'm not sure how to enter the information. Help!

Public Comments

1. It is very unlikely that the original 2 funds were sold for exactly what you paid for them. So you likely do have some gain or loss on them. If these are in a taxable account, you need to account for the cost basis of the original 2 funds (ie, the total you paid for all shares, including any dividend reinvestment). Otherwise the gov't would think the liquidation (sale) of those funds to buy the other funds was 100% profit. However, if this all took place within and remained within an IRA or other qualified retirement account, there would be nothing to report about any sales.
2. You don't need to "get cash" to have a capital gain or loss. From your description, it appears that you sold the first two funds to get money to buy the last three funds. When you sold the first two funds, the amount you received for them determines whether you had a gain or a loss on each, which you have to report on your tax return. Then, your initial investment (or "basis") the in the last three funds is the amount you paid to buy them, not the amount you paid to buy the first two funds which you later sold. Summary: Report all 5 transactions as if you sold the first two funds for cash, and then bought the last three funds also for cash.