How Do I Determine My Gain or Loss on Stock or Mutual Funds?
If you sell shares in a mutual fund, even if you "reinvest" the proceeds in another fund, the transaction is considered the sale of stock and reportable on Form 1040, Schedule D.
The mutual fund should issue you Form 1099-B showing the gross proceeds of the shares you sold. Some companies will also include an "average cost basis" statement, which saves you the trouble of calculating the cost basis of the shares you sold. If this is not available, you will need to calculate this yourself.
Simply add up your total cash invested in the fund, including dividends you retained in the fund to buy additional shares. Divide this by the number of shares owned in the fund before the sale, and this is your average cost basis per share. This is the figure you multiply by the number of shares sold, in order to
determine the gain or loss on the sale.
You can further refine this calculation by doing separate calculations for those shares held long term (more than one year) and short term (under one year). Further information is provided in IRS Publication 564.