Saving capital gain tax on sale of property
Capital gain means the profit earned from sale of capital assets (Shares, Property and other capital assets). The taxes imposed by income tax department on capital gain are called as capital gain tax. If the capital gain is on sale of property asset …
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I have a regular brokerage account (not tax deferred). I bought a mutual fund a number of years ago, and over the years the dividends have been reinvested in the same fund. This year, I was advised to rebalance my portfolio, so I sold all of this mutual fund. Unfortunately, the last dividend reinvestments were within the last year.
So the question is, does this reinvestment cause my entire mutual fund sale to be taxed at the long-term or the short-term capital gains tax rate? Or is the recent reinvestment portion short term and everything else long term? If so, what do I use for the tax basis for all of that?
It’s not the dividends I am asking about. It is the reinvestments of them. When I sold the mutual fund, all of the fund, including the reinvestments got sold. The question is, are each of the small little reinvestments taxed separately, or in one big lump?
Answer by phaldo
There’s no such thing as a long term or short term dividend. All dividends are taxed at 15%.
Feel free to read up on the Jobs and Growth Tax Relief Reconciliation Act of 2003.
Answer by STEVEN F
You don’t have a short term OR a long term capital gain. You have BOTH a short term AND a long term gain. The gain on the shares purchased with dividends reinvested in the 12 months prior to sale is a short term gain. The Gain on all other shares is a long term gain. I recommend taking ALL your statements for the account to an accountant for assistance.
The basis for the short term gain is the amount of the dividends reinvested in the last 12 months. The basis for the remainder is the total amount you originally invested + the total dividends reinvested more than 12 months ago. Splitting the proceeds is the interesting part.
You can lump all the long term gains into one number and lump all the short term gains into a second number. Write ‘Various’ for the purchase date. I did this when I sold stock from an employee stock purchase plan several years ago. If I was wrong, the IRS let the statute of limitations expire without an audit.
Answer by Charlie & Angie G
The first 2 posts are almost correct. Regular dividends are taxed at the marginal rate (the rate at which your other income is taxed), qualified dividends are taxed at the capital gains rate maximum 15%.
In addition to what steven f wrote; the difference between what you paid when you bought our shares and what you sold them at is not your gain. Dividends and capital gain distributions that the mutual fund has are added to your basis (you will already have paid taxes on them), so don’t forget them when you figure your gain or loss
It is mandatory to pay capital gains tax if you dispose of any asset by transferring or giving it way. You are also subject to paying the CGT if you receive compensation, for example, you may receive compensation for a damaged good from an insurance company.
You do not have to pay any capital gains tax on the sale of your car, and first home, under most conditions, ISAs or PEPs, UK government gilts (bonds), income from betting, lotteries or pool winnings, or in other words, any money that is already subject to income tax.
Calculating the CGT:
When you sell an asset: Let us assume you bought some shares for £1000 and you sold them for £2000. You would need to pay CGT on the gain which in this case is £1000.
When you give an asset: It is important to point out that you need to pay CGT on the value of the asset and not what you get from it. To illustrate this, let us consider that you bought a flat for your son at £70,000 four years ago and its value has now appreciated to £100,000. Suppose you let him have it at less than the market value, £75,000. Your gain would be £100,000 minus £70,000 which is £30,000.
When you dispose of an asset: If you dispose of an asset which you received as a gift, your gain will be based on the market value when you received it. For example, you are gifted a garage whose value at the time when the gift was made was £5000. Now you sell it for £8000. Your gain in this case will be £3,000.
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