How does one determine the gain or loss on Mutual Fund sales?
The IRS Tax Code does not double tax you on the sale of mutual funds!
First question I have for you is this, did you re-invest the proceeds, ie were the capital gains and dividends declared reinvested into the mutual funds? If they were, the amount paid to you should be added to the original cost basis, thus reducing the total gains on the sale of the mutual funds.
Now, they the funds declared these dividends and capital gains and you opted to be receive these payments, then they do not get added to the basis in the calculation of the capital gains and losses. These are really earning generated from the mutual funds and therefore are includable in income on Schedule B usually, the year they are paid to you. The Sale of the Mutual Funds are a separate transaction resulting in a gain or loss and are reported on Schedule D.
The mutual funds will typically send you a year end report that actually shows your basis of the mutual funds that are sold. You should also refer to their 1099-Report, as this report is sent to the IRS as well. Your cost basis should match the number reported on the 1099 Report sent by the mutual funds.