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Author: Littlechap Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 17917  
Subject: Re: selling fund before distribution Date: 9/2/2008 12:23 PM
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I'm planning to sell 3 funds before December, before any distributions of gains from earlier this year....I want to both claim the long-term loss and avoid the distribution, which would be taxed. Am I missing something? If I don't own the funds at time of "distibution", am I still going to be hit with that? Thanks for any help.

Mopsie,

1) If you really detest the 3 funds in question, then go ahead and sell them and don't look back. But if not, well personally, I would not be unloading a good investment -- something with a chance of rebounding -- just to avoid fear of an unknown tax bill. If you have a bunch of other income that you want to deduct against, well I guess this is one way to achieve that. But a loss is a loss. Using it to reduce one's tax bill simply takes money out of one pocket to put it in another.

2) Unless a fund publishes a standard rate of annual yield, you do not know for certain that there will BE any distribution in December. Sometimes they will notify investors in advance, but as far as I know, the notification is not required by any regulation. You should double-check that, though.

3) If a fund does have a regularly recurring dividend distribution, that distribution might occur monthly or quarterly, not just in December. You would need to look this up in the prospectus or elsewhere. Dividends are taxed at the same rate as ordinary income.

4) If a fund has a predictable, planned dividend distribution, then it will most likely publish the date on which an investor must own the fund to be eligible for the dividend. Usually that date is one or two days before the actual distribution takes place. Again, this refers to planned dividend distributions, not one-time capital gains distributions.

5) Make sure that you have desire to ever own the funds again, or at least, not anytime soon. If you sell something at a loss, then repurchase shares of the same security within 30 days, some or all of the loss will not count, because it will be considered a "wash sale."

6) Do the math. If you sell a fund at $30 per share, to avoid $1 per share in taxes, you may have second thoughts if the fund rises to $35 per share a week later. You might still be able to sell the fund within tax year 2008, at a higher price, but lower than your cost basis. So even with the CG taxes in the calculation, you'd still get your LTCG deduction but have more total cash resulting.

NOTE: Most of the stuff being discussed here is covered in IRS documents and in publications by mutual fund companies. It would be a good idea for you to check those primary sources to confirm anything you read here, including anything I've said. Hope this helps.
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