Capital Gains

[Ronstar]

I'm looking at MIL's 1099s (through an FA) and running rough tax numbers through Dinkytown before I turn this over to the CPA.

I'm certainly investment guru, but her capital gains seem to be absurd.

2002 cap gain was 16% of the amount of portfolio loss - that's right - a positive capital gain on a negative portfolio change.
2003 cap gain 14% of portfolio gain
2024 cap gain 38% of portfolio gain
2025 cap gain 54% of portfolio gain

This seems ridiculous to me. She only sold $35k out of the portfolio in 2025.

Does this level of capital gains seem normal?

 

[TheWizard]

She must be holding managed funds in taxable, not generally the best thing to do...

 

[sakowitzm]

Normal? No. But when an ETF/Mutual Fund/Closed-end Fund sells assets that they hold, and there are capital gains on those sales, they will pass those capital gains on to the shareholders. Even though the shareholder didn't actually sell anything.

 

[jebmke]

Active funds likely (or perhaps portfolio churning by advisor). Killers - you bleed out every year.

 

[TickTock]

Yah. I'd check what funds are in her portfolio and how much cap gains they're throwing off.

It looks way too high to me - but I'm broad-based US and Developed Market equity funds in our taxable account. So my background may not be appropriate.

 

[COcheesehead]

Churn, baby churn. Disco inferno.
Managed funds in taxable accounts are a good way to burn money.

 

[sakowitzm]

Love the disco reference!!!

 

[target2019]

And some adviser likely put her in those funds. Incredible.

 

[Ronstar]

Thanks everyone. I'm having brain cramp today. I forgot about the mutual funds selling assets - just as you all are saying.

And I called the FA to complain. He probably thinks I'm a lunatic. But hey, the capital gains are increasing exponentially every year. And I don't like it.

ETA, I put our taxable with the same FA a few years ago as requested by DW. Our 2025 capital gains calculate out to be 2.9% of the account, where MIL's is 54%. Something still not right.

Probably that our taxable has more tax efficient funds than MIL. When I transferred our taxable from Vanguard to the FA, the FA kept most of the Vanguard funds I had. I think that explains it - the Vanguard funds are much more tax efficient than the FA's.

 

[audreyh1]

In addition to mutual fund distributions are things being sold?

 

[Dtail]

Good fiduciary responsibility.
Good thread for those who choose an FA plus the 1% or so fee.

 

[Sunset]

Normal? No. But when an ETF/Mutual Fund/Closed-end Fund sells assets that they hold, and there are capital gains on those sales, they will pass those capital gains on to the shareholders. Even though the shareholder didn't actually sell anything.

Generally not ETF's, but many funds yes.

ETF's trade like stock, so if you sell you get your capital gains, but if you don't sell you don't get them from selling.

https://www.morningstar.com/funds/few-etfs-project-capital-gains-distributions-2025-key-takeaways-investors

A few ETF's do declare capital gains
"In 2025, only 6% of US exchange-traded funds (ETFs) are expected to declare capital gains distributions, with just 2% anticipating distributions above 1% of their net asset value. This indicates a limited number of ETFs are projected to benefit from capital gains in 2025."

 

[Sunset]

I'm looking at MIL's 1099s (through an FA) and running rough tax numbers through Dinkytown before I turn this over to the CPA.

I'm certainly investment guru, but her capital gains seem to be absurd.

2002 cap gain was 16% of the amount of portfolio loss - that's right - a positive capital gain on a negative portfolio change.
2003 cap gain 14% of portfolio gain
2024 cap gain 38% of portfolio gain
2025 cap gain 54% of portfolio gain

This seems ridiculous to me. She only sold $35k out of the portfolio in 2025.

Does this level of capital gains seem normal?

You might as well look at the MER rate on the funds the FA has her in, and if they were front end loaded too !!

 

[Ronstar]

And some adviser likely put her in those funds. Incredible.

I don't know the whole story, since I have only had access to her accounts for about 10 years. But she started with this FA maybe more than 50 years ago, so these funds were probably fine then.

 

[Ronstar]

In addition to mutual fund distributions are things being sold?

She sold $35k in 2025

 

[Mark1]

In addition to mutual fund distributions are things being sold?

She sold $35k in 2025

Yup, she sold $35k and took the distribution, but is the FA selling stuff and buying other stuff on her behalf and thus generating the CG? I guess I'm a little confused.

 

[pb4uski]

I think you need to look at her brokerage statement for the year and bifurcate between capital gain distributions and capital gains from sales.

As you know, capital gains distributions can't but managed much other than through fund and manager selection.

Capital gains from sales are easier to manage.

What you describe sounds very odd.

 

[Ronstar]

Yup, she sold $35k and took the distribution, but is the FA selling stuff and buying other stuff on her behalf and thus generating the CG? I guess I'm a little confused.

I have to check this. I believe that the funds themselves are buying and selling. I don't believe the FA is buying or selling anything.

 

[target2019]

I don't know the whole story, since I have only had access to her accounts for about 10 years. But she started with this FA maybe more than 50 years ago, so these funds were probably fine then.

Ball's in your court now. It's difficult to eliminate this CG problem created by a sales guy.

 

[Ronstar]

Ball's in your court now. It's difficult to eliminate this CG problem created by a sales guy.

I'll dig into it. And I'll compare it to my taxable account with the same FA. I think my taxable account has about 1/3 of the 2025 capital gain ratio to account gain compared to MIL's account.

 

[target2019]

I'll dig into it. And I'll compare it to my taxable account with the same FA. I think my taxable account has about 1/3 of the 2025 capital gain ratio to account gain compared to MIL's account.

The test for you is to cause no harm while trying to course correct. I used smaller sales with MIL account to chip away at the growing problem. When she passed we sold all of tax unfriendly stuff immediately.
Good luck.

 

[Koolau]

I'm looking at MIL's 1099s (through an FA) and running rough tax numbers through Dinkytown before I turn this over to the CPA.

I'm certainly investment guru, but her capital gains seem to be absurd.

2002 cap gain was 16% of the amount of portfolio loss - that's right - a positive capital gain on a negative portfolio change.
2003 cap gain 14% of portfolio gain
2024 cap gain 38% of portfolio gain
2025 cap gain 54% of portfolio gain

This seems ridiculous to me. She only sold $35k out of the portfolio in 2025.

Does this level of capital gains seem normal?

Not for me, but I don't structure my funds to enhance cap gains.

 

[Lucie]

I would make sure to turn off the DRIP so the capital gains are not being reinvested in those mutual funds.

 

[Koolau]

I would make sure to turn off the DRIP so the capital gains are not being reinvested in those mutual funds.

How would you invest the dividends? That's what supplies the DRIP IIRC. The capital gains are baked into the cake already, aren't they?

 

[audreyh1]

Capital gains distributions are taxed whether reinvested or not. Both dividends and capital gains are “baked into the cake” until they are distributed.