- quote -

In 2003, your received a $1000 dividend and paid taxes on it.

Then you took $1000 and bought new shares. Reinvestment is
actually two transactions:
(a) the earnings payment and
(b) a new purchase that you happen to make with the same
amount as the earnings.

The basis of the new shares is (of course) $1000. If you
sell the new shares (transaction (c)) for $1500 there's a
$500 taxable profit because transaction (c) goes with
transaction (b). In 2005, transaction (a) is irrelevant
history; it has no bearing on the sale; it's already been
resolved as far as taxation is concerned.

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"Han" <nobody[at]nospam.not> wrote:
- quote -

It doesn't work like that. The gain in your example would
be $500 (not $350). What you're proposing would in effect
be giving you a deduction (reduced gain) for your federal
income taxes which of course are not deductible. Keep in
mind in your example that upon disposition, you're only
paying tax on the portion of the sale price that represents
the GAIN over previously taxed income (i.e., the $500),
you're not paying taxes on the entire $1500 proceeds, if you
were paying tax on the 1500, then you would have double
taxation on the first $1000.

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Han wrote:

- quote -

Nothing. You just pay the taxes on the distribution.

- quote -

No. Only reinvested amounts are added to the basis.

- quote -

No, it doesn't. Adding the reinvested amounts to the basis
is all that it takes to avoid and double taxation.

- quote -

The $150 tax was paid on the $1000 that was used to purchase
the reinvested shared. That is why you don't count the
first $1000 (the basis) when computing the capital gain.
Because that $1000 was already taxed money. The capital
gain tax is paid only on the $500 gain that had not yet been
taxed. No double taxation, and no double-counting of the
tax money, either.

- quote -

Not. The capital gains are $500, and that is the amount
used to determine any taxes that are due. Taxes paid on the
gains do not figure into the basis in any way whatsoever.

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Han wrote:

- quote -

Pay them, just like other nonpayroll income.

- quote -

If the capital gains distributions and dividends are reinvested (used
to buy additional shares), the amount is added to basis. Don't forget
to increase your share total by the appropriate amount.

- quote -

No, there is no double taxation in this. There might be if
you forget to add the amount of reinvestment to your cost
basis, however.

- quote -

No, the capital gain is $500. The tax you paid on the $1000
of reinvested dividends and capital gain distributions was
ordinary income tax on that income, but has nothing to do
with any subsequent capital gain on sale.

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Han <nobody[at]nospam.not> writes:

- quote -

Nothing.

- quote -

No.

- quote -

No, it doesn't.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Han <nobody[at]nospam.not> wrote:
- quote -

Read the message you quoted. You add the distributions to
the cost basis. Also, when the fund makes a distribution,
they reduce the NAV by the amount they distribute. As a
result, when you eventually sell the shares your gain will
be reduced (or your loss increased) by the amount of the
distribution. So there's no double taxation, because your
capital gains tax is reduced correspondingly.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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"ed" <edcosoft[at]sbcglobal.net> wrote in news:128maaukbpvn422
- quote -

I don't know about the OP, but I have to pay taxes on the
cap gains and dividends for the tax year in which they are
distributed. What can you do about those taxes? Are they
to be added to the basis? Somehow it seems that double
taxation creeps in.

Let's say:
Cap gains/dividends reinvested in 2003 were $1000
Taxes paid on that: $150
This portion of stock sold in 2005 for $1500
Straight cap gains on this is $500, but there was already
$150 tax paid.
Is the "net" cap gains now $350, or not?

--
Best regards
Han
email address is invalid

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gsk wrote:

- quote -

You are correct. Add all the reinvestments to basis.
Everything would be long term except the dividends
reinvested within a year of the sale, and those shares will
be a short term sale. Do not add them to the basis of the
original shares or year old dividends.

ed

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"gsk" <coucoukhoury[at]yahoo.com> wrote:

- quote -

Basically, yes.

- quote -

That's the only wrinkle, you need to separate the long term
and short term. Find your statements from the year before
you sold, and any distributions during that time would count
as short-term, while the original purchase and all other
distributions would be long-term. Pro-rate the total
proceeds of the sale to the two terms based on the number of
shares.

You can enter each of these as a single item on Schedule D
-- enter "various" for the purchase dates.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA
*** PLEASE don't copy me on replies, I'll read them in the group ***

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gsk wrote:

- quote -

That's the one.

- quote -

Make two totals. One for purchases and reinvested dividends
more than one year prior to date of sale (long term) and one
for purchases within one year of sale. Allocate the sales
price in the same manner. Report the results on Line 1 and 8
of your Schedule D.

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coucoukhoury[at]yahoo.com (gsk) posted:

- quote -

You're on the right track. You should add all of the
reinvested dividends and capital gain distributions to your
cost basis. For everything that was reinvested 1 year or
more before you sold the fund, all of your gains are long
term.

For the limited amonts reinvested during the last year
before selling, you will have to compute a separate item --
either gain or loss -- and enter it as a short term capital
gain(loss).

If you have good records (as it seems you do), it's really
just a math problem to add up everything you reinvested plus
your original cost to compute the full basis vs your net
realization at the time of sale.

Bill

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Can someone help me figure out how to report on the sale of
a mutual fund. I bought the mutual fund way back in 1993,
through the years I received cap gain and dividends which
were reinvested back on the same fund. I sold everything
last June. The bank did not provide me with cost basis.
How shall I report. Do I add all the cap gain and dividends
to my original cost and bottom line would be my cost basis?
how about short term and long term cap gain? Please help.

Tnx
gsk

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