[Babubhat]

Why you buy ETFs

[retiredguy123]

Originally Posted by tuccillo

There aren't any capital gains for an IRA. You pay taxes when you cash in as ordinary income minus the basis, if applicable.

Correct. You get no benefit from the lower capital gains tax rates in an IRA. All gains are taxed at your ordinary income tax rate, but only when you take an IRA distribution.

[Rainger99]

Originally Posted by roob1

I invested 200K in a Vanguard mutual fund, and at year's end (2021 and 2022), it was valued at approx. 165K. Both years it was reported I had about 10K in capital gains. How can I have capital gains (and tax liability) when the investment value is less than I invested?

However, if the mutual fund has losses during the year, you can’t deduct them because the loss is unrealized.

To claim a loss from your mutual fund investment, you must have "realized" the loss -- that is, you must have sold some or all of the shares before the end of the year. If you have not sold any of your fund shares, your loss is "unrealized," meaning that the loss is not fixed or final -- as long as you still own the shares, their value could go up next week, next month or next year.

However, this doesn’t work with gains. You pay them even if they are unrealized.

[retiredguy123]

Originally Posted by Rainger99

However, if the mutual fund has losses during the year, you can’t deduct them because the loss is unrealized.

To claim a loss from your mutual fund investment, you must have "realized" the loss -- that is, you must have sold some or all of the shares before the end of the year. If you have not sold any of your fund shares, your loss is "unrealized," meaning that the loss is not fixed or final -- as long as you still own the shares, their value could go up next week, next month or next year.

However, this doesn’t work with gains. You pay them even if they are unrealized.

To clarify, the only reason the OP owes tax on the capital gains is because they were distributed to the mutual fund shareholders as a result of individual stock shares being sold within the mutual fund. But, if the overall mutual fund net asset value increased, the OP would not owe taxes on the gain, as long as he did not sell the mutual fund shares. You do not pay taxes on a gain in mutual fund value until you sell the mutual fund shares. You do pay taxes if the fund manager sells individual stocks within the fund and distributes the gains to the shareholders.

So, unrealized gains are not taxed. But capital gain distributions are realized gains. That is why they are taxed.

[Rainger99]

Originally Posted by retiredguy123

You do pay taxes if the fund manager sells individual stocks within the fund and distributes the gains to the shareholders.

But if the fund manager sells stocks at a loss, why aren’t the losses passed along to the shareholders?

[retiredguy123]

Originally Posted by Rainger99

But if the fund manager sells stocks at a loss, why aren’t the losses passed along to the shareholders?

I believe that losses are passed on to the shareholders, but I don't remember that ever occuring with my mutual funds. The fund manager doesn't itemize the individual stocks that were sold, so you only get a consolidated total of the losses and the gains, which usually results in a net capital gain distribution, not a net loss.

[Rainger99]

Originally Posted by retiredguy123

The fund manager doesn't itemize the individual stocks that were sold, so you only get a consolidated total of the losses and the gains, which usually results in a net capital gain distribution, not a net loss.

You say “usually” results in a net capital gain distribution. There must be some years where a mutual fund has a net loss. But I don’t think I have ever been able to deduct those.

[retiredguy123]

Originally Posted by Rainger99

You say “usually” results in a net capital gain distribution. There must be some years where a mutual fund has a net loss. But I don’t think I have ever been able to deduct those.

I don't know because I only invest in index funds. I have never seen a net loss, but, it could be possible. I think the fund managers would try to avoid net losses because capital losses can only be used to offset ordinary income of up to $3K per year. So, a shareholder with a large capital loss could take multiple years to take advantage of a large loss. It may not be a good selling point for the fund.

[Pres1939]

Originally Posted by roob1

I invested 200K in a Vanguard mutual fund, and at year's end (2021 and 2022), it was valued at approx. 165K. Both years it was reported I had about 10K in capital gains. How can I have capital gains (and tax liability) when the investment value is less than I invested?

Retiredguy123 is correct. Note, too, that you can offset the Capital Gains Distributions, if you have other losses on stock or funds you sold last year. It is always good to check your funds in mid-December each year to see if the funds will report Capital Gains Distributions (Your advisor should tell you that). If they do, you can offset them by selling stocks/funds with losses.

[PersonOfInterest]

Originally Posted by roob1

I invested 200K in a Vanguard mutual fund, and at year's end (2021 and 2022), it was valued at approx. 165K. Both years it was reported I had about 10K in capital gains. How can I have capital gains (and tax liability) when the investment value is less than I invested?

Sell the investment and the loss will outweigh the gain.

[Tyson]

I invested about 45 years ago when i saw what Vanguards expense ratios were. Put abut 150k in 10 different index funds and now even with 2021 and 2022s lagert performances their now around 2 mill. Cant beat Vanguard if you dont sell and reinvest always.

[roob1]

3k a year max loss claim though....

Originally Posted by PersonOfInterest

Sell the investment and the loss will outweigh the gain.

[Catalina36]

Your Dividends are Taxable!!!!!

[Gunny2403]

Nice response. Good info.

[dennisgavin]

ain't the government great.......;o(