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I have just sold all shares of a stock index mutual fund. I first bought shares in 1995. I have kept meticulous track of every share, whether purchased with new funds, or with dividend reinvestments, for the purpose of establishing cost basis.

As we all know, the stock market has soared and plunged, since 1995. When I sold shares in 2002 and 2003, I specifically sold share lots which were bought at the highest prices per share, in order to declare a capital loss in those years.

In every year, I paid taxes on the dividends and capital gains reported on the 1099-DIV, of the remaining shares. Since this is an index fund, it is relatively tax-efficient (low turnover, hence low capital gains).

My understanding is that I will have to pay a capital gains tax, for 2004, on the shares I have just sold, in addition to the fund capital gains, reported on the 1099-DIV. However, my DH says that the obligation to pay capital gains tax is satisfied by paying the 1099-DIV capital gains, and that I don't have to pay a capital gains tax on the sale. DH tends to be very confident, whether he is an expert on the subject or not ;-), so he has gotten me confused.

Do I have to pay a capital gains tax on the sale of the shares, in addition to the 1099-DIV?

Thanks,
Wendy
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