Are my recent dividend reinvestments taxed at the short term or long term capital gains tax rate?

Question

I have a regular brokerage account (not tax deferred). I bought a mutual fund a number of years ago, and over the years the dividends have been reinvested in the same fund. This year, I was advised to rebalance my portfolio, so I sold all of this mutual fund. Unfortunately, the last dividend reinvestments were within the last year.

So the question is, does this reinvestment cause my entire mutual fund sale to be taxed at the long-term or the short-term capital gains tax rate? Or is the recent reinvestment portion short term and everything else long term? If so, what do I use for the tax basis for all of that?

It's not the dividends I am asking about. It is the reinvestments of them. When I sold the mutual fund, all of the fund, including the reinvestments got sold. The question is, are each of the small little reinvestments taxed separately, or in one big lump?

Answer 1

Your second description of how the gain(loss) is handled is correct.

Every year when your mutual fund issued the dividends, you received a 1099DIV from the mutual fund. You had to pay income taxes on those dividends, even though they were reinvested. Those taxes are already paid.

In 2007 your mutual fund also issued a dividend, and again you will receive a 1099DIV showing those dividends. You will pay income taxes in 2007 on those dividends. If they are qualified dividends your tax rate will be at most 15%. Other dividends will be taxed as ordinary income. The 1099DIV will show the ordinary dividends and the qualified dividends.

Now for the sale of the mutual fund.

1. Your short-term gain (or loss):

Sales Price: The value of the shares purchased with the 2007 dividends

Basis: The 2007 dividends

2. Your long-term gain (or loss):

Sales Price: Total Sales Price minus the value of the shares purchased with the 2007 dividends

Basis: Your original investment plus all of the reinvested dividends through 2006. You can get this basis from your 2006 mutual fund statement.

Date of purchase: Put the date of the 2006 dividend reinvestment. Don't put "various" because that will cause the entire sale to be short-term.

Your 1099B will only show the totals. Make sure the short-term and long-term gains (losses) reconcile with the 1099B. You can figure your short-term gain, then use the 1099B to get the numbers for your long-term gain.

Answer 2

You don't have a short term OR a long term capital gain. You have BOTH a short term AND a long term gain. The gain on the shares purchased with dividends reinvested in the 12 months prior to sale is a short term gain. The Gain on all other shares is a long term gain. I recommend taking ALL your statements for the account to an accountant for assistance.

The basis for the short term gain is the amount of the dividends reinvested in the last 12 months. The basis for the remainder is the total amount you originally invested + the total dividends reinvested more than 12 months ago. Splitting the proceeds is the interesting part.

You can lump all the long term gains into one number and lump all the short term gains into a second number. Write 'Various' for the purchase date. I did this when I sold stock from an employee stock purchase plan several years ago. If I was wrong, the IRS let the statute of limitations expire without an audit.

Answer 3

Recent Dividend Mutual Fund

Answer 4

The first 2 posts are almost correct. Regular dividends are taxed at the marginal rate (the rate at which your other income is taxed), qualified dividends are taxed at the capital gains rate maximum 15%.
In addition to what steven f wrote; the difference between what you paid when you bought our shares and what you sold them at is not your gain. Dividends and capital gain distributions that the mutual fund has are added to your basis (you will already have paid taxes on them), so don’t forget them when you figure your gain or loss

Answer 5

Your capital gain tax rates are wrong. Long term cap gains (stocks owned for more than 1 year) get taxed at either 0% or 15%, depending on your marginal tax rate (MTR). Short term cap gains (stocks owned for 1 year or less) are taxed at ordinary tax rates (whatever your MTR is). Your MTR is how much tax you would pay on one more dollar of income. When you sell stocks, they must be categorized into either long term or short term sales. If you are going to make multiple purchases of the same stock over time, you should assign a “lot” number to each purchase. For example, you purchase 100sh ABC on 10/1/2001, it’s lot 1. You purchase 50sh ABC on 12/31/2011, it’s lot 2, etc. When you start selling the stocks you’ll know when you bought them and how much you paid for them. You can’t lump them all together just because they are from the same corporation.

Answer 6

There's no such thing as a long term or short term dividend. All dividends are taxed at 15%.

Feel free to read up on the Jobs and Growth Tax Relief Reconciliation Act of 2003.