<p>It’s that least favorite time of year, and I am facing a dilemma I am sure others have faced, in fact I have done this before myself. I am just wondering what others have done in the same situation. This must be fairly common for those of us who have saved for college starting when our kids were very young. Here is the scenario:</p>
<p>I will keep it simple, but even at it’s most simple it gets complicated. Let’s say you or your parents Put $2000 in a mutual fund for little Johnny back in 1992. You haven’t touched it since then. Every year dividends and capital gains were reinvested in the fund AND you dutifully included those dividends and/or capital gains on yours or little Johnny’s tax return every year since 1992. Now, in 2012 the fund was worth $4000 and you sold the entire amount to help pay for Johnny’s college expenses. </p>
<p>Now you have to figure out what the basis is. Roughly that $2000 starting amount plus all the reinvested capital gains and dividends that you already paid taxes on. The basis could actually be more than $4000, so for tax purposes you may be able to show that you sold it for a loss. Problem is, I am finding it a real challenge to recreate the history. I don’t have all the tax returns going back 20 years to show the distribution history. The funds don’t have the history going back that far. The funds don’t have basis information for me going back that far. Yahoo finance is helpful. They have fund distribution history going back to 1998.</p>
<p>I was just wondering how others have dealt with this problem. I was just looking at a junk bond fund that through off high yield dividends every year and we just sold it last year. I believe if I added everything up correctly it would be a tax LOSS but it is going to be difficult to document.</p>
<p>Depends on how good your recordkeeping is. I just did this for my father on a mutual fund he started in 1983. But he had all his records. Every single one. Including when he sold some of it in 1992 which affected the basis. I made a really pretty spreadsheet for him. </p>
<p>If you started with one investment company and never changed they really should be able to provide you with that information and if they don’t, I’d change companies. That should motivate them</p>
<p>I have all of my tax returns going back to 1979 and am in the process of converting them to digital format. But that doesn’t help you out or maybe it does. I would imagine that there are other people out there that are packrats too and they might be able to provide you with the distribution information for a given fund for a particular year. What would be interesting is a website or forum where people could provide this information - you post your mutual fund and the years that you need and other people look in their records and what the distributions for that year are. If it was a widely-held MF like Magellan or Contrafund, you might have some success.</p>
<p>I have been using Quicken since late 90s so it’s easier for me to figure out the cost basis. I also have tax records the past 15 years. Call the mutual fund company. They could probably help you.</p>
<p>I am dealing with this for my Dad, the dividends were reinvested monthly, so I am going month by month, year by year, recreating what was put into the fund. The problem is that on the months with missing statements, there is no share price for that purchase, so I have a year end total of what was put in, but not the exact amount paid per share.</p>
<p>No big deal if I sell the entire thing, but no, this “investment” is in default and can only be sold one day per year and the fund manager can limit the amount that is sold to 5% of your total ownership, which I think means you cannot ever sell it all, since it will continue to be 5% of an ever shrinking number of shares.</p>
<p>A couple of years ago the company holding the fund for my parents went out of business right around the time the shares could be sold, so despite trying to sell, we could not, and with the company out of business, no back records are available.</p>
<p>I am reconstructing some of the info via old tax returns, for approximates. Can you get old copies of tax returns from the IRA?</p>
<p>I have asked the accountant if we can declare it a loss and then, IF she is later able to sell some shares, count those as 100% income; I don’t think she will live long enough to take the losses on the fund otherwise and she could use the deduction. I cannot sell the shares to anyone other than the fund manager and only at their discretion and they are not currently selling new shares. There goes what I thought was their emergency fund :(</p>
<p>You have the 1992 basis. You have all dividends from 1998 to the present. Absent something really bizarre from 1992 to 1998, there is nothing that would have lowered the basis of your mutual funds. Right?</p>
<p>So you would use the 1992 basis, plus all reinvested dividends from 1998 onward (via yahoo finance) and use that “worst case scenario” for the IRS. Sure, you lose out on six years of dividends being added to the basis, but the six years (especially so long ago) aren’t significant in the grand scheme of things.</p>
<p>I know that people who did something like buy stock in 1992, but have no idea specifically when or for what value per share, will do things like use the lowest price of the stock in 1992 as the basis. Of course, that might mean a higher tax bill, but for every extra $5 in basis, you really only save $1 or so on your tax bill. Sometimes it’s worth it to know that you can survive an audit.</p>
<p>The fund company doesn’t have the information. I love the symbol: HOAX. I am doing an approximation similar to what ariesathena described. When we moved 5 years ago, I purged files including tax returns older than 7 years. I may take a look and see if I can get any clues from old statements.</p>
<p>My FIL worked for AT&T for most of his career, and piled up a lot of stock over the years.</p>
<p>Unraveling all of the splits, the breakup, takeovers, spinoffs, mergers, etc. was a nightmare. I think he wound up with stock in something like 23 companies.</p>
<p>It was the early days of the internet and fortunately we could find a bunch of information on line.</p>
<p>I think that my mother is in the same boat - she loaded up on AT&T a long time ago and it split into a bunch of companies. I wouldn’t be surprised if she still has all of the shares as she’s mainly a dividend investor.</p>
<p>HOAX? Seriously? -I can’t even find that ticker symbol. Are you sure this isn’t an April fool joke? Well I hope you actually were able to sell it and bank the cash!</p>
<p>Sorry, the full symbol is DHOAX, Delaware High-Yield Opportunities A (DHOAX). Turns out a recent statement, June 2011, had an average basis figure so all I had to do was add up the monthly distributions received after that date and just add them to the basis… so had I looked through the files earlier I would have answered my own question. Sorry about that. (Incredible that my wife actually called them and they provided zero help. The rep must have been clueless)</p>
<p>1 more, for the tax inclined:</p>
<p>Even if you don’t claim a kid as a deduction, because you have not provided 50% of his support, can you still claim (or try to claim) education tax credits if you paid college expenses?</p>
<p>In other words whoever claims the child as a dependent can claim the credit. Any college payments made by you is treated as if the payment was made by the child.</p>
<p>Might also want to carefully consider if you provided more than half of his support. If you paid the tuition, then you might have. Loans are not considered as support provided by the student.</p>
<p>Thanks Krlilies, that is very clear! We have one kid who made some money in 2011 and we stopped claiming him as a dependent. In 2012 he made little money and graduated (In December) , but I think he lived on his savings more than our support. Other kid we continued to claim and will claim this year and I guess we will use his college expenses to file for the tax credit. I had better review my prior year returns to make sure we haven’t claimed the education credit in 4 previous years. I don’t think so, but don’t remember for sure.</p>
Well I hope you actually were able to sell it and bank the cash!</p>