Will We See Negative Capital Gains Distributions?

[headingout]

I was beginning to think of end-of-year tax loss harvesting to offset some capital gains I had before the big market plunge. But it occurred to me that I might not need to artificially create a loss, because my stock mutual fund holdings could generate those instead. Is this possible? I have not seen it in my years of investing. But if all these funds are madly selling holdings in order to meet redemptions from panicky investors, then surely they are starting to take capital losses that would overwhelm their gains. And it would seem those losses would be passed along at the end of they year, just like gains. Can anybody with more experience advise us whether this is possible or likely?

 

[audreyh1]

We can only hope to see 0 capital gains distributions. Hope that your fund manager took taxes into account when selling stock for redemptions (probably was easy to do this month!).

There is no such thing as negative distributions. The funds will carry capital losses forward and it will offset capital gains in future years. This happened in 2001-2004.

Audrey

 

[kaneohe]

I don't know if they can't or they just don't but I too have never seen negative CG distributions (or maybe it's been so long that I just don't remember). I suspect I have never seen any since they say when your memory goes, the old stuff sticks and the recent stuff doesn't......so none seen in 28 yrs.

edit: and I wouldn't be surprised if you got large capital gains (positive) this year. In 2000 when things were going down, CG distributions for me were the largest ever. I don't see any harm in TLH even if you can't use it all up soon.

 

[freebird5825]

and I wouldn't be surprised if you got large capital gains (positive) this year. In 2000 when things were going down, CG distributions for me were the largest ever. I don't see any harm in TLH even if you can't use it all up soon.

somebody please correct me if i'm wrong, but kaneohe just hit upon the year end surprise we haven't even begun to look at. the mass redemptions are gonna kill us buy-and-hold types if our funds had to do massive sells to meet redemptions. this happened to me and LH in 2000 also while we were still w*rking. i had no clue what hit me. the cap gains pushed us so close to the AMT i had to write out some large charity checks at year end just to stay out of that zone. whew!
boy was i when i researched it and found the answer. i was a relatively new investor at the time.

 

[Gone4Good]

I wouldn't be surprised if you got large capital gains (positive) this year.

Yup, the WSJ or somebody just did an article on this. Vanguard said they didn't expect many distributions but some other companies had some pretty big ones in the queue.

Often times funds will disclose ahead of time their projected distributions for the year. Depending on your specific circumstances, it might not be a bad idea to punt any funds that were going to make a large distribution.

 

[Nords]

this happened to me and LH in 2000 also while we were still w*rking. i had no clue what hit me. the cap gains pushed us so close to the AMT i had to write out some large charity checks at year end just to stay out of that zone. whew!

This was another reason that we ditched mutual funds in favor of ETFs.

 

[FIREd]

Last time I checked my VG funds, only three reported to have some realized capital gains this year, Wellington 0.18%, Wellesley 1.17%, Equity Income 0.6%. Those capital gains are much, much smaller than last year (they are probably offset by a bunch of losses). As Audrey pointed out negative capital gain distributions do not exist.

 

[audreyh1]

2000 was a bad year for Cap Gains distributions because even though the market went down, it only went down a little, and most funds still had plenty of gains to realize from 1999.

But we didn't have the same problem in 2002, when the market was really down hit hard.

This time equities are so hugely beaten down that it is much more likely that mutual funds are seeing capital losses instead of capital gains as the result of redemptions.

At least I hope so, because otherwise it means the manager is doing a very poor job managing the tax consequences of the redemptions!

Audrey

 

[NW-Bound]

There is no such thing as negative distributions. Audrey

The wonder of tax laws, same as you have to pay all cap gains up front, but deduct only $3K/year on losses. Has anyone heard an argument for that, other than it is a "diode" or "check valve" that keeps money flowing just one way?

 

[NW-Bound]

somebody please correct me if i'm wrong, but kaneohe just hit upon the year end surprise we haven't even begun to look at. the mass redemptions are gonna kill us buy-and-hold types if our funds had to do massive sells to meet redemptions. this happened to me and LH in 2000 also while we were still w*rking. i had no clue what hit me. the cap gains pushed us so close to the AMT i had to write out some large charity checks at year end just to stay out of that zone. whew!
boy was i when i researched it and found the answer. i was a relatively new investor at the time.

Yes, if you bought in a bad year after a string of good ones, you may have "paper loss", but get taxed on the "dividends" at year end. How did I know? Same as FB, but the amount was not as much she had.

If there are losses, the loss carried inside the MFs would make them "taxproof" for the next few years, however.

 

[ladelfina]

The wonder of tax laws, same as you have to pay all cap gains up front, but deduct only $3K/year on losses. Has anyone heard an argument for that, other than it is a "diode" or "check valve" that keeps money flowing just one way?

Is another argument needed

 

[NW-Bound]

I thought so!

If we have a truly fair system, investors who have a really bad year with negative adjusted income would have the previous taxes rebated. Either that, or one must be allowed to do "income averaging". Many many years ago (20? 25?) I was able to do income averaging once. In the past 10-20 years, I have been doing my taxes with PC programs, and no longer really know the tax code. But I don't think the income averaging option is there anymore. Is it?

 

[kumquat]

There is no such thing as negative distributions.
Audrey

Really? Not to argue, curious. Here in Canuckistan, MF companies routinely pass on capital losses, to the point where DW has a large unused credit since she won't dump the cr*ppy MF's she inherited ("dad died with a lot of money, he didn't get it working").