Editor's Note: Tracy Byrnes will be answering questions throughout the tax season to help guide you through your return. Please send her an email to ask a tax-related question. She will pick a few each week to answer for all of our readers.


I bought shares in a mutual fund several years ago at various prices and have not put moneyinto the fund in the last three years, but I reinvested all my dividend distributions. I know Ihave paid taxes all along on the distributions, but I sold all my holdings in the fund last year.Do I have to pay more taxes? And if I don't have any of the paperwork, how can I compute thetaxes? -- F.L.

Tracy Byrnes: This is a great question. And the simple answer is yes, you have to pay more taxes. But let'swalk through the thought process, because it's important to understand.

There are actually two separate transactions here. First, you get the dividend. You owe tax on it.Transaction one is complete.

Now, you decide you want to buy more shares of your fund. Whether you do it with your dividend money or the money you made from a part-time gig as a bartender, it doesn't really matter. It's new money into the fund. Reinvesting those dividends just makes life easier. That's transaction two.

Things get hairy when you try to determine your cost basis, aka purchase price, in the fund-- especially if you don't have any paperwork.

In an ideal world, your mutual fund company has been keeping track of your cost basis.

The good news is that when you sell the shares, you'll get a Form 1099-B reporting just about all the information you need to calculate your taxable gain or loss. So if you sold everything in 2005, you should have received a 1099-B that details the name of the fund, the date of the sale, the amount received on the sale, and the amount you paid for the shares, says Fred Stein, a tax analyst with RIA , a provider of tax information and software to tax professionals. The gain or loss might actually be calculated for you. So just plop those numbers onto your Schedule D -- Capital Gains and Losses and you'll be done.

If you lost your 1099-B, call you fund company and beg for a new copy.

If the 1099-B isn't detailed enough, ask the fund company to send you copies of your purchasesover the years. You can crunch the numbers yourself.

To make the calculations, determine your original share purchases. You'll then need to add the amount of dividends you reinvested back into the fund, says Stein. The sum of those amounts -- the original cost of your fund shares plus the amount of reinvested dividends -- is your "cost basis" in the fund.

If you paid commissions to buy those shares, be sure to subtract those fees from your total cost basis.

Next, determine the amount you received from the sale of your fund shares and subtract anycommissions. The difference between the amount you received from the sale and your total costbasis is your overall capital gain or loss. That amount should be reported on Schedule D.

Whew. That's way too much math.

But let's all learn a lesson here and never have to do this again. Going forward, be sure tokeep all your trade records or create a spreadsheet of your own detailing how many shares youpurchased, the purchase price and the date you bought them. Then you'll be much better preparedwhen you decide to sell.

If the gain on the sale of my house is less than $250,000, do I have to report it on Schedule Danyway, even though I won't owe tax on it? -- G. C.

People must've done a ton of buying and selling homes last year, because the questions keepcoming!

The home-sale exclusion rules say that you won't owe tax on any gain from the sale of your home up to $250,000 as a single person and $500,000 as a married couple, as long as you lived there as your primary home for two of the last five years.

So if your gain doesn't exceed that amount, there is no need to report it, says Mark Luscombe, a principal federal tax analyst with CCH, a provider of tax and business law information.

So that's one less thing to worry about this tax season!

Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback; click here to send her an email.

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