Capital gain distribution that is reinvested in the fund. NON IRA

Forum|Forum|3 years ago
December 27, 2022
2 replies
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My financial "advisor" said that if capital gains are reinvested in the fund it adds to your cost basis but is not taxed. I think all distributions that are not tax exempt are taxed so I was looking for a cost basis and he said its not there because the distribution was reinvested. Who is right?

Not A Product Question

Carl11_2

Employee

Depends on the type of fund. Typically, a distribution is taxable income regardless of what you do with it. But that's not always true, as it depends on how things are set up. If you get a tax reporting document for the distributions, then you report it on your tax return. That does not necessarily mean it gets taxed though.

NCPERSON1

@ccarley you are - capital gains distributions are taxed, whether or not they are reinvested.

If reinvested, it adds to your cost basis (no different than using cash to buy the shares - in fact, you had cash for the nano-second between the time the distribution occured and the re-investment happened)

Mike9241

an exception would apply if it was a municipal bond or muni money market fund. as long as the distribution was not a capital gain distribution.

TomD8

Employee

On the positive side, the capital gains distributions are taxed similar to long-term capital gains, no matter how long you hold the shares. Most investors might pay a 15% capital gains tax, rather than the potentially higher ordinary income tax rate.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.