Any time you sell mutual fund shares, you'll have to calculate the gain or loss on your trade and report it to the IRS. Simple rule of thumb: liquidate all your long term shares before distributions. So a $20-per-share fund that pays $5 a share will become a $15-a-share fund, and investors will be no richer the day after the payout than the day before. Selling a fund at a loss and buying it back within 30 days is considered a wash sale, which disallows your use of the loss. This process, often referred to as round-trip trading, is not expressly prohibited, per … For a mutual fund, the capital gain is the profit made from selling securities in its holdings. Definition of a Mutual Fund's Short- & Long-Term Holding Period, Mutual Funds That Distribute Capital Gains to Their Holders. NASDAQ data is at least 15 minutes delayed. Keep Me Signed In What does "Remember Me" do? Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. That's because of extra taxes/higher rates that could kick in. On the other hand, an investor might be able to sell fund shares at a loss to avoid a distribution. If at year's end, the total amount of capital gains exceeds the value of capital losses, the fund must pass on the net proceeds to shareholders. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. If you sell your mutual fund before the ex-dividend date, you may avoid the fund's distribution, but you may end up with an even larger tax problem. It looks like you're new here. Mutual funds don't always make capital gains distributions. © 2015 Mutual Fund Observer. Therefore, you want to sell before the … Short term shares are (usually) better liquidated after distribution. Are there any advantages to selling before the ex-dividend date, or should I just collect the distribution and sell in the future? Another pitfall to avoid when selling fund shares is a wash sale. To avoid getting hit with the gain, you'll have to sell the day before the "ex-dividend" date, which is two business days before the record date. If you sell your mutual fund before the ex-dividend date, you may avoid the fund's distribution, but you may end up with an even larger tax problem. After selling the JP Morgan position, the fund would have a $57 capital gain per share to distribute to investors. Addendum: If you are liquidating, it's usually better to not use average cost. If you decide to sell a mutual fund to avoid the capital gain distribution then buy it back because you like it as an investment, beware of the wash sale rules. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm. If you buy a fund right before the record date, part of your investment will be returned to you when distributions are paid. Buying a mutual fund before or after a distribution can Sellers want to sell their mutual fund shares before the year-end distribution.? That's because long term shares (which are taxed at a lower rate) usually cost less than shortterm shares. If you've held the fund for one year or less, the effects could prove costly. They will all result in LT capital gains however, and I used up my LT capital loss carryover last year. Suppose that it is a long-term capital gain distribution. How to Take Money Out of a Short-Term Bond Fund, IRS: Topic 409 -- Capital Gains and Losses, IRS: Publication 550: Investment Income and Expenses, NBCNews.com: How Investors Can Avoid a Taxing Situation, U.S. Securities and Exchange Commission: Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends. 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