Taxes on mutual funds
Category: Business and Money > Accounting
Asked by: nymexdesk-ga
List Price: $10.00
13 May 2006 10:33 PDT
Expires: 12 Jun 2006 10:33 PDT
Question ID: 728446
Assuming the value of the stocks held by the fund doesn't move, if I buy a mutual fund 1 day before it pays a long term capital gain and sell the fund 1 day after, do I get a long term capital gains on the distribution and short term capital losses on the holding of the fund?
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Re: Taxes on mutual funds
From: ubiquity-ga on 14 May 2006 10:20 PDT
First, the taxation of funds would be described in the Prospectus. Second, you have to say what kind of an account it is (i.e. tradition brokerage, IRA, roth IRA, Keogh, etc.) Third, the only periodic taxes you pay on a mutual fund is dividends and interest (although they are often reinvested, you do pay taxes on them when earned, then going forward your basis would be adjusted accordingly). So, your question really doesn't make sense. The amount of time a fund holds a stock is really irrelevant, you are taxedon how long u hold the fund, not how long the fund holds the underlying security. Please note, foreign taxes are taken out when they are earne, but you do not see it, it is reflected in the fund's performance. Also, if this is in the variable insurance products that invest in underlying funds, the rules may also be different and premium taxes may also be applicable.
Re: Taxes on mutual funds
From: myoarin-ga on 15 May 2006 08:24 PDT
I see the situation differently. The distribution of long term capital gains will be based on the fund's holdings and activity and - I believe - reported as such to the IRS and your stock broker, i.e., reported on your statement. I don't think the fund is in a position to differentiate that you have have just bought into the fund. Your stock broker will record and report your brief holding of the fund, which may reflect an ex-dividend short term loss. I doubt that the IRS will be able to or worry about connecting these two items. If your statement shows a long term capital gains income, that would be the logical way to report the income, and justification for doing so. If this is not correct, then it is certainly an excusable error. As always, this is no professional or legal advice (see disclaimer below).
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