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You own MAPIX? Don't bail on it at least until.....
The dividend will cause the price to drop. Hopefully some of that dividend is qualified.
If you've held the shares for less than a year, selling after the dividend will increase a short term loss in exchange for a qualified dividend (taxed the same as a long term gain).
A hypothetical might help: Suppose you purchased on Aug 29th, at $15.14/share. (Current price is $15.10). Assume the price doesn't change between now and 3/20. If you sell before the dividend, you've got a 4c loss/share.
If the fund distributes 2c/share, the price will drop to $15.08. You'll have a 6c short term loss, and a 2c dividend (hopefully qualified). Thus you've increased your short term loss by 2c in exchange for a 2c extra dividend. The dividend may be taxed at a lower rate than the tax rate on your short term loss.
This comes with many qualifications - it only works on short term shares; it only works if the dividend is at least partially qualified; the IRS might disallow this tax arbitrage.
On that last point - if the dividend is long term cap gains, the IRS requires you to hold the shares for at least six months to play this game. See Fairmark. I haven't found a similar rule for qualified dividends, but I haven't really looked that hard, either.
Are these games worth playing? If you're scratching your head over what I wrote above, the answer is no. You only "win" if you've got short term gains to balance out, and I suspect the amount of the "win" is pretty small in any case. But small opportunities are sometimes there.
I am scratching my head at how some people overthink these things when just the daily movements in NAV can potentially wipe out several times these marginal tax benefits to make the decision to wait for distribution a crap shoot.
I am scratching my head at how some people overthink these things when just the daily movements in NAV can potentially wipe out several times these marginal tax benefits to make the decision to wait for distribution a crap shoot.
Don't overthink other than do NOT reinvest dividends Keep your cost basis simple because some day you will need to sell and then you'd be happy you did.
Besides, Confucious says if you reinvest the dividend then it constitutes as a purchase, so unless you wait 30 days to sell, you cannot take the tax loss. Confucious is right.
Yooz guys. I'm not at all so active in diddling with my stuff. I reinvest pay-outs in order to grow my package for wifey and the next generation. My karma account is in good shape that way...
Comments
If you've held the shares for less than a year, selling after the dividend will increase a short term loss in exchange for a qualified dividend (taxed the same as a long term gain).
A hypothetical might help:
Suppose you purchased on Aug 29th, at $15.14/share. (Current price is $15.10). Assume the price doesn't change between now and 3/20. If you sell before the dividend, you've got a 4c loss/share.
If the fund distributes 2c/share, the price will drop to $15.08. You'll have a 6c short term loss, and a 2c dividend (hopefully qualified). Thus you've increased your short term loss by 2c in exchange for a 2c extra dividend. The dividend may be taxed at a lower rate than the tax rate on your short term loss.
This comes with many qualifications - it only works on short term shares; it only works if the dividend is at least partially qualified; the IRS might disallow this tax arbitrage.
On that last point - if the dividend is long term cap gains, the IRS requires you to hold the shares for at least six months to play this game. See Fairmark. I haven't found a similar rule for qualified dividends, but I haven't really looked that hard, either.
Are these games worth playing? If you're scratching your head over what I wrote above, the answer is no. You only "win" if you've got short term gains to balance out, and I suspect the amount of the "win" is pretty small in any case. But small opportunities are sometimes there.
Besides, Confucious says if you reinvest the dividend then it constitutes as a purchase, so unless you wait 30 days to sell, you cannot take the tax loss. Confucious is right.