Capital gains, Dividends....

[SumDay]

Please be gentle with me. I have a mental block about taxes rules when selling mutual funds, which is why I kind of try to stay away from them.

Let's say I have money in Wellington & Wellesley, and dividends are reinvested. I've made no withdrawals.

Let's say Vanguard shows I have $10,000 in long-term capital gains on those two funds.

Let's also say I have received 1099-DIV's totaling $8,500 over the past several years.

So, if I sell now, would I only need to report $1,500 since I've already paid taxes on $8,500?

Let me know what else you need to know to answer my question. Thank you in advance for whatever kind, gentle wisdom you are willing to share.

 

[RunningBum]

Pretty certain you'd pay taxes on $10,000 capital gains if you sold it all now. Vanguard would be adjusting your basis for you when you reinvest those dividends.


Suppose you invested $50,000 years ago in those funds. Your cost basis at that point is $50,000, and cap gains would be whatever over $50,000 you sold it for at that point.


But got $8500 in dividends and reinvested them all. Those are additional purchases. Now your cost basis is $58,500.


If your investment is now worth $68,500, you'd have $10,000 in capital gains.


You could try to walk through you initial purchase and all of your reinvested dividend purchases and plug in your actual numbers to the above to prove that.


I'm almost certain Vanguard has kept track of all this for you, and if they are telling you now that you have $10,000 in unrealized capital gains, if you sold now at that price they would send you a 1099-B showing $10,000 in capital gains that you'd report on schedule D.


There's actually that whole change where before a few years ago they didn't report the basis to the IRS but they will for any shares purchased (including div reinvestments) since then, but Vanguard will still send you something for your own use showing the basis and cap gains, which should be the right numbers to report on schedule D.


Now, if you had asked the question differently, and said you invested $50,000 years ago, reinvested $8500 over the years, and now had $60,000, then the answer is $1500 in cap gains. But since Vanguard is telling you $10,000, I don't think these are the right numbers, but instead you really have $68,500.


Bottom line, barring an unlikely error in Vanguard's calculations, what they tell you your cap gains are is what they really are.

 

[Philliefan33]

Your LT capital gains are over and above the dividends that you received, paid taxes on, and reinvested.

 

[pb4uski]

Please be gentle with me. I have a mental block about taxes rules when selling mutual funds, which is why I kind of try to stay away from them.

Let's say I have money in Wellington & Wellesley, and dividends are reinvested. I've made no withdrawals.

Let's say Vanguard shows I have $10,000 in long-term capital gains on those two funds.

Let's also say I have received 1099-DIV's totaling $8,500 over the past several years.

So, if I sell now, would I only need to report $1,500 since I've already paid taxes on $8,500?

Let me know what else you need to know to answer my question. Thank you in advance for whatever kind, gentle wisdom you are willing to share.

No, you would report $10,000 as a long-term capital gain on your 2016 tax return and it would cost you between $0 and $1,500 in federal income taxes (in most cases).

The $8,500 that you reported as income in past years and reinvested is included in your basis (what you paid for the funds sold that resulted in the $10,000 gain).