Tax FAQ

The cost basis of your mutual fund shares is typically the purchase price, including any sales charges you paid when you purchased your shares. Activity such as reinvested dividends/capital gains and wash sale adjustments may increase your cost basis, while other activity, including nondividend distributions (i.e., return of capital), may reduce your cost basis.

The Internal Revenue Service (IRS) phased in regulatory changes related to cost basis in 2012. As a result, the IRS requires mutual fund companies to report cost basis information to both investors and the IRS on the sale or exchange of fund shares acquired on or after January 1, 2012 — called “covered” shares.

The IRS regulations apply only to taxable accounts. Tax-favored accounts, including 529 and retirement accounts, are not required to report cost basis.

No. Broadly speaking, the IRS regulations apply to taxable sales and exchanges.

Tax-favored accounts, such as retirement and 529 accounts, are not required to report cost basis. Money market accounts that maintain a constant net asset value are not subject to the cost basis regulations.

When available, cost basis information is included on the Form 1099-B mailed to you in late January.

You may also log in to your online account to view or download your Form 1099-B (if available) under Statements & Tax Forms.

Note: Tax forms are stored by tax year and not by the calendar year in which they’re generated. To see when the current year’s forms will be available, review the Tax form schedule.

Yes, reinvested dividends and capital gains are considered additional purchases made at the net asset value share price on the day the reinvestment occurred.

We provide several IRS-approved methods for determining your cost basis on covered shares — each with different tax implications.

Please consult your tax advisor to determine which method should be selected for your individual tax situation.

The IRS website has many cost basis resources, including:

Mutual Funds (Costs, Distributions, etc.)

Publication 550, Investment Income and Expenses

Instructions for Form 1099-B

No. Each taxpayer’s situation is unique, so we encourage you to consult your tax advisor, investment professional or the IRS to determine which cost basis method to select.

The Specific Lot Identification method requires that you identify the specific shares you want to sell or exchange each time you want to make a sale or exchange. We recognize, however, that there may be situations where investors don’t specify the shares they want to use. In such instances, we ask investors to designate a secondary method we can use to make the sale or exchange. If an investor has not set up a secondary method, we’ll use First In, First Out as the default secondary method.

For most accounts, we’ve traditionally used the Average Cost method for cost basis reporting, and we’ll continue to use that method for your noncovered shares. If you have been using a method other than Average Cost, you can continue to use that method for your noncovered shares. If, however, you have used Average Cost for your reporting to the IRS in the past, it is our understanding that the IRS requires you to continue using Average Cost for noncovered shares going forward unless you received permission from the IRS to use another cost basis method. Please consult your tax advisor if you have questions about your individual situation.

When shares are sold or exchanged, the capital gain or loss is the difference between the proceeds from the sale or exchange and the cost basis of the shares.

Even though we will report cost basis for the sale or exchange of covered shares to you and to the IRS, you will be responsible for reporting any capital gain or loss information for both covered and noncovered shares to the IRS.

Whether you purchased your shares directly or through reinvestment, the length of time you owned the shares — their holding period — determines whether their gain or loss is considered long- or short-term:

• Long-term: shares held for more than one year
• Short-term: shares held for one year or less

Special rules apply to losses from the sale of shares held six months or less if you received capital gain distributions on those shares. Please consult your tax advisor for more information.

No, we do not report cost basis information for noncovered shares to the IRS.

Cost basis information for covered shares is provided on your quarterly statements and reported on Form 1099-B.

If cost basis information is available for noncovered shares, it is also provided on your quarterly statements and on Form 1099-B.

To view your cost basis information or change your cost basis method, log in to your account and go to Profile & Settings.

The cost basis information for covered shares generally transfers. The cost basis information for noncovered shares, however, is not required to be transferred with shares.

Yes, assuming we maintained a cost basis for the noncovered shares when originally acquired and we receive cost basis information on the transferred noncovered shares.

The IRS rules require us to track and report to the IRS cost basis for covered shares that are gifted or inherited. When noncovered shares are transferred, they remain noncovered. When covered shares are transferred, they remain covered if we receive the information required to calculate the cost basis.

IRS regulations make the distinction between covered and noncovered shares in a taxable account.

Covered shares are any shares acquired on or after January 1, 2012. The IRS phased in regulatory changes related to cost basis in 2012. As a result, we are required to report the cost basis for any sales or exchanges of covered shares to you and the IRS.

Noncovered shares are any shares acquired before January 1, 2012, and any shares for which cost basis is unknown. We are not required to report cost basis for these shares to the IRS.

In general, a wash sale occurs if you sell or exchange fund shares at a loss and, during the 61-day period beginning 30 days before the sale or exchange, you purchase the same fund shares, regardless of the account. The loss is not allowed for tax purposes and must be added to the cost basis of the repurchased shares. The regulations require us to track wash sales separately for covered and noncovered shares and within the same fund and share class. As was the case prior to the regulations, investors must apply the wash sales rules across all of their accounts in the same fund.

If within 90 days of redeeming shares you purchase shares in the same fund or another one of the American Funds (except American Funds U.S. Government Money Market Fund), and you notify us that you're using the right of reinvestment, the purchase may be made without a sales charge. Any sales charge on the shares initially purchased may not be included in the basis of the shares redeemed if the subsequent purchase occurs before February 1 of the following year. Such sales charge must be added to the cost basis of the newly acquired shares.

IRS regulations require us to apply the load deferral rules only within the same fund and share class. As was the rule prior to the regulations, you must apply the load deferral rules across all American Funds.

For example, assume an investor purchases The Growth Fund of America® on March 5 with a sales charge and sells The Growth Fund of America on April 12. Further assume that the investor uses the right of reinvestment to acquire shares in The Income Fund of America® on July 6 without a sales charge. Although we’re not required to apply the load deferral rules because the later purchase was in a different fund, the investor is required to apply the load deferral rules. The sales charge paid for The Growth Fund of America shares may not be included in the basis of The Growth Fund of America shares sold on April 12. Instead, the sales charge is added to the basis of The Income Fund of America shares acquired on July 6.

Noncovered shares will be redeemed before covered shares unless you select the Specific Lot Identification method and identify covered shares to be redeemed.