I have a tax question, as I'm trying to identify assets that I might sell to finance replacing my 22 year-old vehicle. A long time ago I bought a tax-exempt muni bond, and the broker set me up with a mutual fund to receive the interest. Eventually the bond was called, and since I had no other investments with that particular brokerage I transferred the mutual fund, now including the proceeds from the bond call, to the brokerage where I had most of my other accounts, Schwab. That was well over 10 years ago, and of course the mutual fund has continued to appreciate, but still what I'd call an underperformer, so my thinking is it may be a good target for liquidation. What is my basis if I were to sell that fund? Is it the value of the account at the time the bond was called and I transferred the fund? I think that's what Schwab lists as the basis. Thanks.
tax question - muni bond, called
- Thread starter Lorenzo
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aja8888
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I'm pretty sure Schwab will figure the basis once you sell it and then issue a 1099 at tax time. They did that for me on a mutual fund I was in for years at Vanguard which I transferred IN KIND to Schwab then sold it a year later.
SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Your basis will be the total of what you paid for the mutual fund, including:
1. What you paid for any shares bought with the interest from the muni bond,
2. What you paid for any shares bought with the proceeds when the muni bond matured, and
3. What you paid for any shares bought with any dividends from the mutual fund that you may have chosen to reinvest.
It is very likely that the brokerage firm tracked the basis properly and transferred the information to Schwab. As aja8888 noted, if you sell the mutual fund, you should receive a 1099-B statement from Schwab the following January/February which will list the mutual fund sale with the details including what they have for cost basis.
If the basis Schwab listed looks about right given the three cost basis items above, and that's what they list on the 1099-B, I'd just use that. There are ways to correct an incorrect basis, but you probably don't need them because Schwab and the other brokerage probably did it right for you.
1. What you paid for any shares bought with the interest from the muni bond,
2. What you paid for any shares bought with the proceeds when the muni bond matured, and
3. What you paid for any shares bought with any dividends from the mutual fund that you may have chosen to reinvest.
It is very likely that the brokerage firm tracked the basis properly and transferred the information to Schwab. As aja8888 noted, if you sell the mutual fund, you should receive a 1099-B statement from Schwab the following January/February which will list the mutual fund sale with the details including what they have for cost basis.
If the basis Schwab listed looks about right given the three cost basis items above, and that's what they list on the 1099-B, I'd just use that. There are ways to correct an incorrect basis, but you probably don't need them because Schwab and the other brokerage probably did it right for you.
Thank you--that's a concise answer! I'm hoping Schwab is listing the basis correctly in my account, because I have no records of what I paid for shares bought in any of the three ways you listed. I'm sure that if I sell the fund I will receive a 1099 from Schwab, and Schwab will use the basis they have been listing, but my question was aimed at trying to confirm the basis right now so I can calculate the potential capital gains tax to compare this option with other options for raising some cash. I can't really confirm it, other than see it's probably in the general ballpark, so I'll just have to go with what Schwab is listing.
SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Right. If you're going to rely on Schwab's numbers - which I think is the right idea in this scenario - then you should be able to just take the selling price minus your basis and that will be your capital gain.
Figuring out the tax due is a bit more work - you'd basically have to complete a pro forma 2024 tax return to see. If you need a quick and dirty estimate, I'd figure it as (15% federal + state marginal rate) * capital gain amount. But that's a very rough estimate and there's lots of scenarios where it could be more or less.
