What happens to my MAGI when I sell a Municipal Bond fund?

[Greystache]

Lets say I bought $50K shares in a California municipal bond fund (I'm a CA resident) several years ago and my shares are now worth $55K. I now need some cash and want to take out $10K from this fund. What is the impact to my MAGI? Will I receive a 1099 form?

[Paul der Krake]

Yes. Assuming you only have one tax lot and sell 10k of it, you will receive a 1099 that says "Greystache sold some shares and made ~1k in profit". Your MAGI will go up by ~1k.