Taking profit on municipal funds held

[ncjayhawk]

I have a number of good quality Municipal funds I have held for quite some time. I use the funds to generate income monthly. I have significant gains in the funds cummulatively and wondered if it made sense to sell the funds, reap the gain, and re-buy the funds in the near future to continue generating an income stream. I understand there are likely tax implications and paying the long term capital gains, also, possibly wash sale rules in re-buying the funds at a later date.

Thanks for any input of experience here.

[bottomfisher]

There doesn't seem to be a compelling reason to sell the funds at this time, especially if you're relying on the funds to generate income? There could be potential tax implications depending on your personal circumstances. So unless you have other intentions for the funds or there are other considerations not mentioned - I suggest staying the course

[Rainier]

Only if you want voluntarily pay taxes on your gains.

[NYBoglehead]

If you planned on re-buying them it makes no sense to sell in my opinion. You'd have to pay taxes on the gains, and then you'd still have the money tied up anyway when you buy the shares again. If it is achieving the monthly income that you're looking for, I see no compelling reason to sell.

[ncjayhawk]

Yes, I thought about it further, the delight of possibly reaping a nice profit would leave a hole in my portfolio that would be filled in again with the same asset class. I guess I would only do this were I to rebalance in a different direction with this component of my asset allocation.

Thanks for the input.

[scrabbler1]

If by some chance you are in the 0% bracket for long-term cap gains, then selling those shares and buying them back right away would not seem too bad because it increases your future cost basis which can offset future cap gains later when (if?) you are in a higher tax bracket and sell those shares. There is no wash sale issue if you are selling shares for a gain and buying them back right away. The wash sale rule applies when you sell shares at a loss now and buy them back right away (within 30 days, I believe).

A friend of mine who has shares in a muni bond fund (I own shares in it, too) often asks me if he should sell some shares and take some gains. The first thing I ask him is where he would invest the proceeds of such as sale. Does he plan to hold it in cash and hope the price drops soon enough so he can but them back at a lower price while he earned next to nothing with the proceeds in a cash account? He has no good answer, usually, so he stays put. (One time, he had a good answer to my question when he used the proceeds to buy his current apartment so he did do quite well with the gains he took.)

[rkhusky]

I plan to do this if I retire early and have a few years with no income before collecting my pension and SS. That way I pay no taxes on the Cap Gains.

[bottomfisher]

Another consideration is that I would not typically look to my municiple bond funds/fixed income to provide the capital gains contributions in my portfolio. They typically aren't used for this purpose. Their general purpose is to generate dividends/fixed income. They likely will take a tumble in price sooner or later. And the opportunity to lock in those gains will have passed. But no one knows whether that will be a month, a year, or 3 years? In the meantime, it appears they are generating income as intended. I don't invest in individual stocks; but that is where I would look to sell and lock in capital gains when opportunities exist

[Default User BR]

If by some chance you are in the 0% bracket for long-term cap gains, then selling those shares and buying them back right away would not seem too bad because it increases your future cost basis which can offset future cap gains later when (if?) you are in a higher tax bracket and sell those shares.

Note that if you have carry-over losses, this will wipe them out to no benefit.


Brian