rosen@gypsy.UUCP (03/11/86)
I have a question concerning the purchase and sale of shares of a mutual fund. Hypothetically, lets make this a no-load fund currently selling at $10 share on January 1, 1984. My question concerns how capital gains are computed on the sale of the fund shares at the end of some period in time. The reason I am confused about this is because I am making the assumption that captial gains/cash dividend distributions are always reinvested and I am not quite sure how they figure into the final taxable amount. Consider this schedule (ignore x-dividends and such): 1/1/84 BUY 100 @ $10 = $1000.00 (100 shares) 6/1/84 RECEIVE $110 CASH DIVIDEND 6/1/84 BUY 10 @ @ $11 = $1210.00 (110 shares) 12/1/84 RECEIVE $120 CAPITAL GAINS 12/1/84 BUY 10 @ $12 = $1440.00 (120 shares) That's a pretty good fund isn't it? :-) Now suppose when tax time comes around I pay my fair share of tax on the capital gains and the cash dividends I've received. Now I want to sell all of the shares I own. 1/1/85 SELL 120 @ $13 = $1560.00 (120 shares) How do I compute my capital gains on the sale of these shares? Normally I would just subtract the total purchase price of 1/1/84 from the sell price of 1/1/85 which would be $560. But unlike common stock, I have already payed taxes on my distributions of the fund. It wouldn't make sense to pay tax on part of this amount twice. Do I simply just subtract that out and I really have a taxable amount of $560-$110-$120 = $330. Is this right? It make sense to me, but it seems if I hold such a fund for 5 or ten years, I have a hell of a lot (sort of) of accounting work to keep track of. On common stock I only have to remember what I orignally payed for it (asssuming I take any dividends as cash). I already know that the sale of a mutual fund shares are taxable as a long term capital gain regardless of how long I own it. Does all this make sense? I want to know before I entrench myself in an accounting nightmare. Or will most funds just send me a complete list of all of my transactions I've made with them when I close out my position in their fund? That would be real nice, but I wouldn't count on it. S. Rosen siemens!gypsy!rosen
okin@sun.uucp (Ken Okin) (03/14/86)
> > I have a question concerning the purchase and sale of shares of a mutual > fund. Hypothetically, lets make this a no-load fund currently selling at > $10 share on January 1, 1984. My question concerns how capital gains are > computed on the sale of the fund shares at the end of some period in time. > The reason I am confused about this is because I am making the assumption > that captial gains/cash dividend distributions are always reinvested and I > am not quite sure how they figure into the final taxable amount. > > Consider this schedule (ignore x-dividends and such): > > 1/1/84 BUY 100 @ $10 = $1000.00 (100 shares) > > 6/1/84 RECEIVE $110 CASH DIVIDEND > 6/1/84 BUY 10 @ @ $11 = $1210.00 (110 shares) > > 12/1/84 RECEIVE $120 CAPITAL GAINS > 12/1/84 BUY 10 @ $12 = $1440.00 (120 shares) > > That's a pretty good fund isn't it? :-) > > Now suppose when tax time comes around I pay my fair share of tax on the > capital gains and the cash dividends I've received. Now I want to sell all of > the shares I own. > > 1/1/85 SELL 120 @ $13 = $1560.00 (120 shares) > > How do I compute my capital gains on the sale of these shares? Normally I You have to treat each purchase event separately at the time of the sale. So for your 1985 taxes, you figure it this way: # shares Price/share Cost Sell Cap gains 100 10 1000 1300 300 10 11 110 130 20 10 12 120 130 10 total ----- ---- ---- --- 120 1230 1560 330 Don't forget that you have to declare the $110 dividend and the $120 capital gains on 1984's tax forms. Also all these sales are long term gap gains. If you had held some of them for less than 6 months, the profits attributable to them would have short term cap gains. Life is even more interesting here in California, where there are short term (<1 year), intermediate term (1-5 years) and long term (>5), vs the Feds where >6 months is long term. > I have a hell of a lot (sort of) of accounting work to keep track of. On Yup. That's why some people pay accountants. I have a spereadsheet I use for keeping track of a Cal Tax Free fund whose asset value fluctates and where I'm constatnly buying and selling as I need or have extra funds. > common stock I only have to remember what I orignally payed for it > (asssuming I take any dividends as cash). I already know that the sale of a > mutual fund shares are taxable as a long term capital gain regardless of how Are you sure?? I'm no tax expert, but I don't know of any tax relief given to mutual funds. Can you cite a reference? > long I own it. Does all this make sense? I want to know before I entrench > myself in an accounting nightmare. Or will most funds just send me a > complete list of all of my transactions I've made with them when I close out > my position in their fund? That would be real nice, but I wouldn't count on > it. I've got some Dreyfus funds. They send quarterly accounting of transactions but they can't figure the cap gains for you since it's your choice which shares you decide to sell if you liquidate only part of your holding. > > S. Rosen > siemens!gypsy!rosen Ken Okin (sun!niko!okin)
roth@im4u.UUCP (Mark Roth) (03/14/86)
You are right in that you do not have to pay tax on the dividends you already paid xes on. However, I would think that the dividends you reinvested are now considered another investment, so you must pay any capital gains on them. Consider if you had taken the dividends in cash and then immediately made the same investment in the fund. This gets really hairy when you reinvest monthly dividends because then the last 6 month's reinvestments will be treated as short term gains/losses and everything before that as long term. And of course if you make monthly payments to your fund then you've got all those seperate investments as well. It's really not that hard to figure out, just time consuming.
boucher@hsi.UUCP (Keith Boucher) (03/14/86)
> > I have a question concerning the purchase and sale of shares of a mutual > fund. Hypothetically, lets make this a no-load fund currently selling at > $10 share on January 1, 1984. My question concerns how capital gains are > computed on the sale of the fund shares at the end of some period in time. > The reason I am confused about this is because I am making the assumption > that captial gains/cash dividend distributions are always reinvested and I > am not quite sure how they figure into the final taxable amount. > > Consider this schedule (ignore x-dividends and such): > > 1/1/84 BUY 100 @ $10 = $1000.00 (100 shares) > > 6/1/84 RECEIVE $110 CASH DIVIDEND > 6/1/84 BUY 10 @ @ $11 = $1210.00 (110 shares) > > 12/1/84 RECEIVE $120 CAPITAL GAINS > 12/1/84 BUY 10 @ $12 = $1440.00 (120 shares) > > That's a pretty good fund isn't it? :-) > > Now suppose when tax time comes around I pay my fair share of tax on the > capital gains and the cash dividends I've received. Now I want to sell all of > the shares I own. > > 1/1/85 SELL 120 @ $13 = $1560.00 (120 shares) > > How do I compute my capital gains on the sale of these shares? Normally I > would just subtract the total purchase price of 1/1/84 from the sell price > of 1/1/85 which would be $560. But unlike common stock, I have already > payed taxes on my distributions of the fund. It wouldn't make sense to pay > tax on part of this amount twice. Do I simply just subtract that out and I > really have a taxable amount of $560-$110-$120 = $330. Is this right? It > make sense to me, but it seems if I hold such a fund for 5 or ten years, I > have a hell of a lot (sort of) of accounting work to keep track of. On > common stock I only have to remember what I orignally payed for it > (asssuming I take any dividends as cash). I already know that the sale of a > mutual fund shares are taxable as a long term capital gain regardless of how > long I own it. Does all this make sense? I want to know before I entrench > myself in an accounting nightmare. Or will most funds just send me a > complete list of all of my transactions I've made with them when I close out > my position in their fund? That would be real nice, but I wouldn't count on > it. > > S. Rosen > siemens!gypsy!rosen Your capital gain is $330. You bought 100 shares at $10 and sold them for $13 for a gain of $300. You bought 10 shares at $11 and sold them for $13 for a gain of $20. You bought 10 shares at $12 and sold them for $13 for a gain of $10. The total gain is $330. My understanding is that not all mutual fund capital gains are taxed as long term. If you buy shares on 1/1/85 and sell them less than six months later then the capital gains (or losses) are short term. This assumes that the fund did not go ex-dividend during that period. If the fund did go ex-dividend and capital gains were distributed then they are considered long term. For example, suppose you buy 100 shares of a fund for $20.00 a share on 2/1/85. The fund then goes ex-dividend on 3/1/85 and distributes a capital gain of $2.00 per share. You then sell the 100 shares on 4/1/85 for $17.50 per share. You have a capital loss of $2.50 per share but $2.00 of it is long term and $.50 of it is short term. This example is given in the IRS publication concerning investment income and expenses. Does anyone have a definitive answer on this subject? Most (if not all) funds will send you a summary of your account and that should be all you need to figure out your capital gains. It can be a time consuming task however especially if you buy a lot of shares all at different times. Keith Boucher HSI New Haven, CT