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I hope this is not too elementary for this board. Someone said something to me the other day that I had never heard before regarding Capital Gains taxes when selling a mutual fund.

He is liquidating all of his mutual fund positions in anticipation of a stock market panic later this year due to the Y2K problem. He says that the gains from his sales (all long term) can be REDUCED by the full amount that he has paid over the years in ANNUAL capital gains taxes; i.e. those incurred by all fund holders at the end of each year as a result of the fund manager's activity.

On one hand, this makes some sense; that you are not taxed TWICE on capital gains. But I had never heard this before and always assumed that these are entirely separate events and therefor, when you sell a fund, you pay 20% (depending on your bracket) of your overall gains and that's it. There are no "deductions" based on your previous capital gains tax payments.

What gives? Please email me personally and/or respond here. Thanks a lot.

Dave B.

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