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Subject Author Date
Mutual Fund Transfer: How to deal Capital Loss? goggleaccount 11-12-2006
Posted by goggleaccount on November 12, 2006, 4:03 pm
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 Good morning:

I was "forced" to transfer one of the mutual fund shares
that I had (FUND A) to another mutual fund (FUND B) on Oct
31st operated by same group. I have received shares of
FUND B at its price as on Oct 31st. The description of the
transfer states "Fund Merge Redeem Non-Taxable"

I had purchased shares of FUND A in one lump five years back
(at the pinnacle of dot-com bubble) and consistently lost
the value since then. Thus, the price at which it was
transferred to FUND B is substantially less than the
original purchase price. The net capital loss is around
$3,000.

My question is:

I believe the cost basis for FUND B shares will be the price
of transfer as on Oct 31st. That being the case, what is
the fate of my capital loss of $3,000 on FUND A? I don't
have any capital gains in this year. Is there any way I
will be able to deduct the capital loss (full or partial
over next couple of years) in Federal Tax Return from Earned
Income? Are there any IRS Guides that would address these
circumstances, as these could be a routine matter?

Thank you in advance for any suggestions.

With regards,
Kyle

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Posted by Barry Margolin on November 13, 2006, 7:50 pm
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 goggleaccount@dodgeit.com wrote:

> I was "forced" to transfer one of the mutual fund shares
> that I had (FUND A) to another mutual fund (FUND B) on Oct
> 31st operated by same group. I have received shares of
> FUND B at its price as on Oct 31st. The description of the
> transfer states "Fund Merge Redeem Non-Taxable"
>
> I had purchased shares of FUND A in one lump five years back
> (at the pinnacle of dot-com bubble) and consistently lost
> the value since then. Thus, the price at which it was
> transferred to FUND B is substantially less than the
> original purchase price. The net capital loss is around
> $3,000.
>
> My question is:
>
> I believe the cost basis for FUND B shares will be the price
> of transfer as on Oct 31st. That being the case, what is
> the fate of my capital loss of $3,000 on FUND A? I don't
> have any capital gains in this year. Is there any way I
> will be able to deduct the capital loss (full or partial
> over next couple of years) in Federal Tax Return from Earned
> Income? Are there any IRS Guides that would address these
> circumstances, as these could be a routine matter?

Since this was a non-taxable transfer, there's no tax effect
at all. The cost basis and purchase date of the old shares
simply transfers to the new shares. You don't get to
declare any loss at the time of the transfer.

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

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Herb Smith on November 13, 2006, 7:50 pm
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goggleaccount@dodgeit.com wrote:

> I was "forced" to transfer one of the mutual fund shares
> that I had (FUND A) to another mutual fund (FUND B) on Oct
> 31st operated by same group. I have received shares of
> FUND B at its price as on Oct 31st. The description of the
> transfer states "Fund Merge Redeem Non-Taxable"
>
> I had purchased shares of FUND A in one lump five years back
> (at the pinnacle of dot-com bubble) and consistently lost
> the value since then. Thus, the price at which it was
> transferred to FUND B is substantially less than the
> original purchase price. The net capital loss is around
> $3,000.
>
> My question is:
>
> I believe the cost basis for FUND B shares will be the price
> of transfer as on Oct 31st.

Actually, your cost basis remains the same as what you
originally paid for the shares. This was not a sale,
therefore there is no capital gain or loss.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Phil Marti on November 13, 2006, 7:50 pm
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> I was "forced" to transfer one of the mutual fund shares
> that I had (FUND A) to another mutual fund (FUND B) on Oct
> 31st operated by same group. I have received shares of
> FUND B at its price as on Oct 31st. The description of the
> transfer states "Fund Merge Redeem Non-Taxable"

It sounds like the equivalent of a tax-free merger of
companies. Your basis and holding period are unchanged.
See IRS Publication 550.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by ed on November 13, 2006, 7:50 pm
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goggleaccount@dodgeit.com wrote:

> I was "forced" to transfer one of the mutual fund shares
> that I had (FUND A) to another mutual fund (FUND B) on Oct
> 31st operated by same group. I have received shares of
> FUND B at its price as on Oct 31st. The description of the
> transfer states "Fund Merge Redeem Non-Taxable"
>
> I had purchased shares of FUND A in one lump five years back
> (at the pinnacle of dot-com bubble) and consistently lost
> the value since then. Thus, the price at which it was
> transferred to FUND B is substantially less than the
> original purchase price. The net capital loss is around
> $3,000.
>
> My question is:
>
> I believe the cost basis for FUND B shares will be the price
> of transfer as on Oct 31st. That being the case, what is
> the fate of my capital loss of $3,000 on FUND A? I don't
> have any capital gains in this year. Is there any way I
> will be able to deduct the capital loss (full or partial
> over next couple of years) in Federal Tax Return from Earned
> Income? Are there any IRS Guides that would address these
> circumstances, as these could be a routine matter?

If you have no other capital gains, you can take up to
$3,000 of capital losses on Line 14 (or thereaboouts) which
deducts it directly from your AGi and taxable income. You
must go through the Long Term Capital Gains and Qualified
Dividends Worksheet of Schedule D.

Moderator:
I do not believe there was a sale here, just a merger of
funds.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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