Author Topic: Funds exchange in taxable Vanguard  (Read 786 times)

FerrumB5

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Funds exchange in taxable Vanguard
« on: December 18, 2018, 07:15:24 PM »
Hi,

I wanted to exchange fund A to fund B in taxable Vanguard, but realized that there could be additional tax consequences on top of this year's cap gains and dividends. Is it so? Fund A has both long and short term (insignificant amount) cap gains.
Thank you in advance!


secondcor521

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Re: Funds exchange in taxable Vanguard
« Reply #1 on: December 18, 2018, 07:22:57 PM »
Yes.  In addition to paying taxes on any of the capital gains and dividends distributed to you while you owned the funds, when you sell fund A and buy fund B in an exchange, you will also incur a capital gain or loss on sale of the shares of fund A.

The capital gain or loss will depend on your basis and when you purchased the shares.  If you bought them more than a year ago, it will be long-term; less than a year is short-term.  It will be a gain if your basis is less than your sales price, or a loss if the reverse is true.

Vanguard will send you a 1099-B in January with the sale on it.  You'll report it on Form 8949 and/or Schedule D.

Indexer

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Re: Funds exchange in taxable Vanguard
« Reply #2 on: December 18, 2018, 10:02:01 PM »
Secondcor is correct.


Side question: What are you investing in at Vanguard that is distributing cap gains at year end?

The reason I ask is that their stock index funds are set up so they shouldn't have to do that, which is why Vanguard stock index funds are great holdings for taxable accounts.

secondcor521

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Re: Funds exchange in taxable Vanguard
« Reply #3 on: December 18, 2018, 10:22:04 PM »
Secondcor is correct.


Side question: What are you investing in at Vanguard that is distributing cap gains at year end?

The reason I ask is that their stock index funds are set up so they shouldn't have to do that, which is why Vanguard stock index funds are great holdings for taxable accounts.

Not me, but several Vanguard funds are distributing capital gains.  See http://vanguard.com/pdf/RET891511_122018_final.pdf where one of the first funds listed is VHCAX/VHCOX with a rather large cap gain distribution.  I assume most are actively managed funds.

FerrumB5

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Re: Funds exchange in taxable Vanguard
« Reply #4 on: December 19, 2018, 08:58:41 AM »
Secondcor is correct.


Side question: What are you investing in at Vanguard that is distributing cap gains at year end?

The reason I ask is that their stock index funds are set up so they shouldn't have to do that, which is why Vanguard stock index funds are great holdings for taxable accounts.

My mistake. Only dividends.
VIMAX and VTSAX

FerrumB5

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Re: Funds exchange in taxable Vanguard
« Reply #5 on: December 26, 2018, 09:22:51 AM »
Thanks, All.
Happy holidays!

Do I understand it right (this time), that TLH on fund A (VIMAX) won't work since it has positive long-term cap gain. I haven't bought this fund in past 1.5 years or so, only reinvested dividends

Aggie1999

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Re: Funds exchange in taxable Vanguard
« Reply #6 on: December 26, 2018, 01:57:38 PM »
Thanks, All.
Happy holidays!

Do I understand it right (this time), that TLH on fund A (VIMAX) won't work since it has positive long-term cap gain. I haven't bought this fund in past 1.5 years or so, only reinvested dividends

Turn on the setting in Vanguard that shows specific lot price instead of the default average price. Guaranteed your dividend re-investments over the last 1.5 years have lost money as of today. Also, quickly looking at the VIMAX chart, shares bought in mid 2017 may be at a loss currently. You'll have to decide if selling each lot with a loss results in enough tax savings against any capital gains or ordinary income (including dividends) to make it worth while. Remember deducting a loss against ordinary income only goes up to$3k per year. An additional loss you carry over to the subsequent years. Also, you have to deduct the loss against capital gains first before deducting against ordinary income.

FerrumB5

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Re: Funds exchange in taxable Vanguard
« Reply #7 on: December 26, 2018, 02:35:21 PM »
Thanks, All.
Happy holidays!

Do I understand it right (this time), that TLH on fund A (VIMAX) won't work since it has positive long-term cap gain. I haven't bought this fund in past 1.5 years or so, only reinvested dividends

Turn on the setting in Vanguard that shows specific lot price instead of the default average price. Guaranteed your dividend re-investments over the last 1.5 years have lost money as of today. Also, quickly looking at the VIMAX chart, shares bought in mid 2017 may be at a loss currently. You'll have to decide if selling each lot with a loss results in enough tax savings against any capital gains or ordinary income (including dividends) to make it worth while. Remember deducting a loss against ordinary income only goes up to$3k per year. An additional loss you carry over to the subsequent years. Also, you have to deduct the loss against capital gains first before deducting against ordinary income.

Did that. Nothing changed. Last time I purchased VIMAX with external funds was end of 2015 as it turns out. Time flies.