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Cost Basis

New IRS Cost Basis Government Regulations

Important Information

  • Please call us toll-free with any questions at 800-932-3271.
  • We highly recommend that you include your accountant or tax preparer when making any decisions.


Effective January 1, 2012, the Internal Revenue Service (IRS) requires all mutual fund companies to follow new “cost basis” reporting procedures for mutual fund shares of taxable, non-retirement accounts. Historically, we have provided shareholders with “average cost basis” reports as a result of redemptions. However, we were not required to report this information to the IRS. Under the new rules, we are required to report cost basis not only to our shareholders, but to the IRS as well.
Current requirements to report the gross proceeds from redemptions on IRS Form 1099-B will remain in effect while FAM Funds is also required to report “cost basis” and “holding period” information (i.e., short-term or long-term gain/ loss) for all shares redeemed.
Mutual fund shares acquired on or after January 1, 2012 are known as “covered shares” and we are required to report the cost basis to the IRS when these shares are redeemed. Shares acquired prior to the effective date are known as “non-covered shares.” The cost basis of the non-covered shares will not be reported to the IRS.
FAM Funds’ accounting “default method” for covered shares beginning January 1, 2012 is “average cost.” Shareholders have the option to choose an alternate cost basis accounting method provided they notify FAM Funds in writing first.


Cost Basis = In a taxable account, cost basis is generally the original amount paid for shares of a security, including the amount of reinvested dividends and capital gains, plus or minus certain adjustments. Cost basis is used to determine gains/losses on any shares you sell in a taxable (non-retirement) account. This information is essential for preparing your income tax return.
Holding Period = The time between the purchase date and redemption date of the mutual fund shares. If the difference is more than one year, the gain/loss is long-term. If it is equal to or less than one year, it is short-term.
Covered Shares = Shares purchased on or after the effective legislation date (1/1/2012).
Non-Covered Shares = Shares purchased prior to the effective legislation date (1/1/2012).
Fund Default Method = A cost basis accounting method assigned to any account(s) in which the shareholder(s) does not choose a cost basis accounting method for the account or upon redemption.

Average Cost = A method of calculating the adjusted cost basis for covered shares. All of the purchase costs are added together to establish the aggregate cost amount. The aggregate cost amount is divided by the total shares in the account to determine the cost per share. The average cost basis is calculated by multiplying the shares redeemed by the cost per share. Again, please note that this is FAM Funds’ default method.

All investing involves risk including the possible loss of principal. Before investing, carefully read the fund’s prospectus which includes investment objectives, risks, charges, expenses and other information about the fund. Please call us at 800-932-3271 or visit famfunds.com for a prospectus or summary prospectus.

Securities offered through Fenimore Securities, Inc., Member FINRA/SIPC and advisory services offered through Fenimore Asset Management, Inc.

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FAM Funds: Tax Center - Cost Basis
Information about the Internal Revenue Service (IRS) requirements regarding “cost basis” reporting and what this means to our FAM Funds investors.