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From: boucher@hsi.UUCP (Keith Boucher)
Newsgroups: net.invest
Subject: Re: Mutual Fund Sale Question
Message-ID: <327@hsi.UUCP>
Date: Fri, 14-Mar-86 11:34:34 EST
Article-I.D.: hsi.327
Posted: Fri Mar 14 11:34:34 1986
Date-Received: Mon, 17-Mar-86 03:29:54 EST
References: <29900009@gypsy.UUCP>
Organization: Health Systems Int., New Haven, CT.
Lines: 71

> 
> 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