Comments on: 3 Reminders About Year-End Mutual Fund Distributions http://thefinancebuff.com/whats-so-bad-about-year-end-mutual-fund-distributions.html like a friend telling you about money ... Fri, 10 Feb 2012 17:31:35 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: TFB http://thefinancebuff.com/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-6515 TFB Wed, 20 Apr 2011 12:36:11 +0000 http://thefinancebuff.com/2008/12/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-6515 @anon - You got it entirely backwards. The cost basis is the original investment plus reinvested distributions. If I bought before the distribution, my cost basis was $2,034.07 + $547.66 = $2,581.73 If I bought after the distribution, my cost basis would be $2,073.21. The cost basis is higher if I bought before the distribution. When I finally sell, the capital gains will be lower. @anon – You got it entirely backwards. The cost basis is the original investment plus reinvested distributions. If I bought before the distribution, my cost basis was

$2,034.07 + $547.66 = $2,581.73

If I bought after the distribution, my cost basis would be $2,073.21. The cost basis is higher if I bought before the distribution. When I finally sell, the capital gains will be lower.

]]> By: anon http://thefinancebuff.com/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-6513 anon Wed, 20 Apr 2011 07:09:30 +0000 http://thefinancebuff.com/2008/12/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-6513 >The day before the distributions, I had 262.123 shares at $7.76 per share worth $2,034.07. I received $547.66 in capital gains distribution. After the distributions were reinvested, I had 356.222 shares at $5.82 per share worth $2,073.21. > But you traded a cost basis of $7.76 for a much lower cost basis of $5.82. So when you finally sell, you will be paying capital gains tax on an extra $1.94 x 356 shares = $690 which comes to a lot more than your $40 instant gain in total value. How many years will it take that $40 to grow enough to equal the cap gains you will pay? >The day before the distributions, I had 262.123 shares at $7.76 per share worth $2,034.07. I received $547.66 in capital gains distribution. After the distributions were reinvested, I had 356.222 shares at $5.82 per share worth $2,073.21.
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But you traded a cost basis of $7.76 for a much lower cost basis of $5.82.

So when you finally sell, you will be paying capital gains tax on an extra $1.94 x 356 shares = $690 which comes to a lot more than your $40 instant gain in total value.

How many years will it take that $40 to grow enough to equal the cap gains you will pay?

]]> By: TFB http://thefinancebuff.com/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-1261 TFB Thu, 25 Dec 2008 01:46:32 +0000 http://thefinancebuff.com/2008/12/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-1261 Ole - You don't match it against anything, or match it against zero if you'd like to think about it that way. Short-term capital gain distributions are reported as dividends by the mutual fund/ETF on 1099-DIV. You report them on Form 1040 Schedule B. Long-term capital gain distributions are also reported by the mutual fund/ETF on 1099-DIV, but in a different box. You report them on line 13 of Form 1040 <a href="http://www.irs.gov/pub/irs-pdf/f1040sd.pdf" rel="nofollow">Schedule D</a> (2008 version). In your example, the $2 per share capital gain distribution is taxable in the current year. If you didn't reinvest the distribution, you have $800 worth of shares with a $1,000 cost basis. If you reinvested the distribution, you have $1,000 worth of shares with a $1,200 cost basis. Either way, you have a built-in unrealized capital loss which reduces your gain when you sell in the future. That's what I meant in Reminder #2. Ole – You don’t match it against anything, or match it against zero if you’d like to think about it that way. Short-term capital gain distributions are reported as dividends by the mutual fund/ETF on 1099-DIV. You report them on Form 1040 Schedule B. Long-term capital gain distributions are also reported by the mutual fund/ETF on 1099-DIV, but in a different box. You report them on line 13 of Form 1040 Schedule D (2008 version). In your example, the $2 per share capital gain distribution is taxable in the current year. If you didn’t reinvest the distribution, you have $800 worth of shares with a $1,000 cost basis. If you reinvested the distribution, you have $1,000 worth of shares with a $1,200 cost basis. Either way, you have a built-in unrealized capital loss which reduces your gain when you sell in the future. That’s what I meant in Reminder #2.

]]> By: Ole http://thefinancebuff.com/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-1260 Ole Wed, 24 Dec 2008 21:15:49 +0000 http://thefinancebuff.com/2008/12/whats-so-bad-about-year-end-mutual-fund-distributions.html#comment-1260 Question for you. Lets say you bought 100 mutual fund or EFT shares for $10 a share in a taxable account. Lets say the fund/etf paid a $2 cap gain distribution at year end and you still held the fund and plan to hold it for the next 20 years. For this current year when you have a cap gain distribution. What kind of cost would you match it up agains? If you match the $2 distribution against a $10 cost you'll claim a loss for the year which doesn't make any sense. Should it be matched against a zero cost for that year instead? Question for you. Lets say you bought 100 mutual fund or EFT shares for $10 a share in a taxable account. Lets say the fund/etf paid a $2 cap gain distribution at year end and you still held the fund and plan to hold it for the next 20 years.

For this current year when you have a cap gain distribution. What kind of cost would you match it up agains?

If you match the $2 distribution against a $10 cost you’ll claim a loss for the year which doesn’t make any sense. Should it be matched against a zero cost for that year instead?

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