Finally, you may need to adjust the basis of your mutual fund shares in certain circumstances.
Undistributed capital gains. If you receive a Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, from your mutual fund, increase your basis by the difference between the amount included in income and the credit for taxes paid.
Return of capital (nontaxable) distributions. Reduce your basis (but not below zero) by the amount of any "return of capital" (nontaxable) distributions that you receive from the mutual fund. These kinds of distributions are shown in Box 3 of Form 1099-DIV. They are not the same as capital gain distributions or exempt-interest dividends.