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[[I am selling off some shares from a standard, non-tax
deferred mutual fund with a gain.]]

So...we're talkin' about a regular, taxable account here...right Tommy??

[[ I've dollar cost
averaged into the fund for about five years. When I call the fund and ask them to liquidate, are
those funds added to my total taxable income for the year? Or do I just get taxed on the gains? It
seems that if it is looked upon as normal income, then that money will be taxed twice. ]]

Your basis in the fund is your original purchase price, and subsequent purchases that you made, PLUS any and all reinvested dividends that you received in the fund since inception.

If you have only made purchases and reinvestments, and no sales prior to your "liquidation", your accounting should be pretty easy. But don't forget to break out your short and long term holding periods on the liquidation. But if you have made other sales transactions over the years, your accounting will be much more complex.

We discuss this very issue in The Motley Fool Investment Tax Guide. You might want to check it out. In addition, IRS Publication 550 will also provide you with some additional information on this very issue. You can check it out on the IRS web site.

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