Vanguard Exchange from one mutual fund to another

[eager_learner]

Hi,

I logged into Vanguard. Clicked on Exchange to reduce my position in Fund A and increase my position in Fund B.

Do I have to pay taxes on unrealized capital gains in Fund A?

For example:
Fund A was purchased in Dec 2018 for $100
Fund A on Dec1st 2020 appreciated to $150
On Dec 1st 2020 I exchanged Fund A to Fund B.
Now on Dec 1st 2020 my position in fund B is $150

Do I need to pay taxes on the unrealized capital gain of $50

In Vanguard when I go to page for Fund A, I see three options:
1. Buy
2. Sell
3. Exchange.

I did not click on Sell or Buy.

[LadyGeek]

Welcome! What is the name of this account? I'm looking for something that might include "IRA" in the title.

(Don't provide personal info or the account number.)

[pasadena]

If it's in a taxable account, then yes (an exchange is really selling fund A and buying fund B in one click).

If it's in an IRA, whether traditional or Roth, then no.

[UpperNwGuy]

An exchange is actually a sell followed by a buy. If the fund is in a non-retirement account, and you sell at a profit, then the IRS wants their share even if you use the proceeds from the sale to buy another fund. In a retirement account, the IRS doesn't get involved.

[KyleAAA]

This would be a realized gain since you sold A to buy B, so if it's in a taxable account yes, you will owe tax.

[eager_learner]

Thank you.

[Longdog]

To expand on what KyleAAA said, an unrealized gain is an increase in NAV of a security that you have not sold. It's gone up in value, but you still hold it at that increased value. A realized gain occurs when you then sell that appreciated security. You've realized the gain and it counts toward your taxable income.