Question Re: Taxes on reinvested cap gains in stock fund

hank

All previous equity investing was within tax-sheltered accounts Am new to non-sheltered stuff

---Made several periodic (cash only) investments into a single growth mutual fund during 2011. No withdrawals or exchanges - just letting it sit. Dividends and cap gains fully reinvested in same fund.

---Are taxes due only on the reported dividends? Am I correct that reinvested cap gains are not reportable or taxable until the time when shares are sold or exchanged out?

This seems pretty straight forward if anyone willing to comment. THANKS.

[Deleted User]

No. The capital gains paid by the fund company and reinvested are taxable now. You will get a form telling you how much which has to be reported on Schedule D. The sad thing is most of the cap gains probably occurred before you were in the fund. That's the nutty part of this.

hank

Thanks Tim - It's starting to make sense now. Those cap gains are from what the fund realized on its investments and are taxable now. In the future, I still must pay taxes on appreciation of the fund shares.

It's a tax-efficient fund. So, hopefully, most of the gain will be deemed "long-term" & subject to a lower rate.

Investor

You will pay taxes on any distribution reinvested or not.

msf

Reply to @Investor: Except for return of principal distributions (which do have the effect of reducing the basis of the shares held).

Investor

Reply to @msf: You are right as always.