You figure the cost for the specific shares sold, which is why it's often best to first sell the shares for which you paid the most. On stock received as a gift, your cost is generally the original cost, but it may be less if gift tax was paid. Mutual fund blues. Determining the cost of mutual fund shares can be a headache, especially when you reinvest dividends or other payouts and thus constantly buy shares at different prices. The simplest tactic is to base your cost on the average price paid.
Funds often provide that figure, and it's the easiest to calculate.
The IRS's default is to assume that you first sell the shares bought earliest. That can raise tax because the oldest shares typically cost the least. IRS rules require that you give the fund written instructions and get confirmation. Ask your fund if it will do this. Fund holders who didn't sell shares last year may still have a taxable capital gain if the fund paid out long-term gains earned from trading stocks.