Realized Gain from Tax Exempt Funds

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Topic Author
sksbog
Posts: 470
Joined: Wed Jun 20, 2012 9:14 pm

Realized Gain from Tax Exempt Funds

Post by sksbog »

Hello All,

I am working on my taxes for last year and ran into this.
I had invested in tax exempt fund VWITX (Inter-Term Tax-Exempt Inv), for 5 years and last year exchanged all the money into another fund VTMFX (Tax-Managed Balanced Adm)

The realized gain, i.e proceedings from VWITX substracted by cost basis, amounts to be $1200.

Is this amount $1200, taxable?

Thanks
stlutz
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Joined: Fri Jan 02, 2009 12:08 am

Re: Realized Gain from Tax Exempt Funds

Post by stlutz »

Yes, this would be a long-term capital gain.
livesoft
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Re: Realized Gain from Tax Exempt Funds

Post by livesoft »

^^^ unless some is a short-term gain. What does the 1099-B say?
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Topic Author
sksbog
Posts: 470
Joined: Wed Jun 20, 2012 9:14 pm

Re: Realized Gain from Tax Exempt Funds

Post by sksbog »

1099-B is very confusing. And it does not have the full picture because the fund is older than 2011.
I believe broker is obligated to tell the story since 2011.
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House Blend
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Re: Realized Gain from Tax Exempt Funds

Post by House Blend »

sksbog wrote:1099-B is very confusing. And it does not have the full picture because the fund is older than 2011.
I believe broker is obligated to tell the story since 2011.
The obligation on the broker is to tell the story on covered shares to the IRS (and to you, on a 1099-B).

It would be a dismal broker indeed who does not report cost basis information on the sale of uncovered shares to you. But either way, the responsibility for tracking basis is on you.
HouseStark
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Location: Minneapolis, MN

Re: Realized Gain from Tax Exempt Funds

Post by HouseStark »

Brokers and fund companies are generally required to report the basis of fund shares acquired beginning Jan. 1, 2012. For common stock shares basis reporting is generally required for shares acquired beginning Jan. 1, 2011. I guess that is "the story" they are obligated to tell. It is not a very entertaining story.

Shares for which reporting is required are called "covered" shares, likewise shares for which reporting is not required are called "non-covered" shares. If you purchased the fund beginning in five years ago, then some or all of the shares you sold in 2013 are non-covered shares. If you were having distributions from the fund reinvested into the fund, or otherwise purchased some shares after 1/1/2012, then you will also have covered shares. This will make the reporting of fund sales have more pieces, but it's really not that complicated. You have to pay attention to the 1099-B details to see which portions of the sale are covered and non-covered. Then there is the breakdown between short and long term. By definition, any non-covered shares would be long term, since those shares would have been acquired before 1/1/2012. The covered shares will likely be allocated between short and long term. The cost basis would be reported using average cost basis, most likely. When these categories are clear, you should be able to enter the information into your tax software by following the interview process. If you are doing the process manually, then 1) Why? Use software! 2) Read the detailed instructions for the forms.
sscritic
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Re: Realized Gain from Tax Exempt Funds

Post by sscritic »

I sold at a gain several years ago. I defaulted to average basis. Vanguard (since they were Vanguard funds held at Vanguard) sent me a 1099 showing the average basis for the covered and the non-covered shares. If I had used cost basis, I would have known my cost, as you apparently do or you couldn't tell us your gain. Since you know your cost, you use your cost on your tax return ("cost or other basis").
HouseStark
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Location: Minneapolis, MN

Re: Realized Gain from Tax Exempt Funds

Post by HouseStark »

The OP could have miscalculated the actual gain, if increased basis from reinvested distributions was not taken into account, so the $1200 could not be correct. If it comes off the 1099-B, then it most likely is correct.

Also, since all shares of the fund were sold, total gain is the same no matter what basis method is used, assuming there were no previous shares. The only effect that different basis methods could have would the split of the gain between short and long term, the total gain could not change. The difference would likely be minimal, in any case.
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