Form 8621 Unreserved Inclusions

[mgriesi]

I understand the fair market value and adjusted basis. Can someone tell me what is the Unreserved Inclusion on line 11.

Thank you

[MGeorge]

Hello,

The "unreverse inclusion" is the amount you add to the adjusted cost basis to account for gains reported in previous years. Here's an example:

Year 1:
you buy 100 units of a mutual fund for $1000.
End of the year it's worth $1050 (FMV)
Gain reported :$50
year 2:
you don't buy any more units.
End of year value $1080 (FMV)
Adjusted cost basis = $1000 + $50 = $1050
Note (here the "unreversed inclusion is $50)
Gain reported = $30
year 3:
you don't buy any more units.
End of year value = $1010 (not a good year)
Adjusted cost basis = $1000 + $50 + $30 = $1080.
Unreversed inclusion is $80
Loss reported is -$70

year 4 (horrible year)
FMV = $900
Adjusted cost basis = $1000 + $50 + $30 - $70 = $1010
Unreversed inclusion is $10 ($80 was the inclusion but it got reversed by $70)
Loss reported is -$10 (because the loss can't exceed the unreversed inclusion).

Year 5 (recovery)
FMV = $1100
Adjusted cost basis = $1000
Gain reported = $100 (note that this is not $200 - this is because your adjusted cost basis will never sink below the initial cost of the units).

I hope this helps.

MGeorge.

[mgriesi]

Thank you that helps a lot.