Helpful Hints on Cost Basis Calculations

(Please note: The information in this article does not apply to Heartland shares held in IRAs or other qualified retirement plans. The value of shares held in retirement plans generally stay tax-free or tax-deferred until distribution.)

As we approach year-end, many of you may have questions about your cost basis.

When you sell or exchange your Heartland shares, you may realize a capital gain or loss that must be reported to the IRS. Calculating your gain or loss requires you to determine the cost basis of your shares. While tracking your cost basis may seem like a daunting task, Heartland is here to assist you.

The IRS allows various methods for determining mutual fund cost basis – First In, First Out Method, Specific Identification Method, Average Cost – single and double category. Heartland Funds uses the Average Cost, single-category method, of calculating your cost basis. The single category method averages the cost of all shares owned at the time of the sale.

If you sell or exchange your mutual fund shares in 2009, for your convenience, Heartland will include the average cost information, if available,* on a cost basis statement mailed in February 2010.  This information is not reported to the IRS, and you are not required to use the Average Cost, single-category method of calculating your cost basis. 

Below is a hypothetical example of a cost basis calculation using the Average Cost, single-category method.

In this example, the investor purchased $10,000 in 2007 and reinvested all dividend and capital gains distributions.

To calculate the average cost per share, divide the total number of shares in the account into the cumulative cost of those shares. 
 
As of 10/1/09, $11,025 cumulative tax cost / 215 shares = $51.28 average cost per share.

If these shares were subsequently redeemed or exchanged, the investor would compare the average cost versus the sale proceeds. 

For example, if the investor redeemed 15 shares at $55 per share, the investor would realize a long-term capital gain of $3.72 per share ($55 – 51.28), or $55.80 ($3.72 x 15 shares). 

Capital gains from shares owned for 12 months or less are short-term and are taxed at ordinary income tax rates. Capital gains from shares owned for more than 12 months are long-term and taxed at capital gains tax rates. While the Average Cost single-category method includes all shares of a fund to compute the average basis, you may have both short-term and long-term gains or losses when you sell these shares. The shares redeemed are considered to be those acquired first.

Wash Sale Rule

If you sell mutual fund shares at a loss and within 30 days before or after the sale you buy shares in the same fund, you have a wash sale.  Under IRS rules, if a transaction is subject to wash sale rules, all or a portion of the losses incurred cannot be taken and may be deferred until the shares are redeemed.  The deferred loss is added to the average cost of the remaining shares in the account.  Heartland Funds’ Cost Basis Statement reflects the allowable loss, adjusted for wash sales. 

Contact Shareholder Services for further questions. We're here to help at 1-800-432-7856, Monday through Friday, 8 a.m. to 7 p.m., CST.


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*Certain accounts may be ineligible for cost basis calculation. A change in account registration may impact the availability of cost basis calculation.  In these situations, arriving at the proper cost basis of your shares can be complex. There are circumstances that may require additional adjustments to your cost basis that we cannot determine. We recommend that you consult your tax advisor.

This is intended for general information only. The Heartland Funds do not offer tax advice. Please refer specific questions to a tax professional.