Tax & EvaluationQuestion 93 of 110
An investor bought fund shares four months ago and now receives a capital gains distribution from the fund. How is that distribution taxed?
a.As a short-term gain, because the investor held the shares less than one year
b.As ordinary income, because all fund distributions are ordinary income
c.As a long-term capital gain, regardless of how long the investor held the shares
d.It is not taxable until the shares are sold
Explanation
Capital gains distributions passed through by a fund are always reported as long-term because the fund's own holding period governs, not the shareholder's. The shareholder's holding period matters only when the shareholder sells the fund shares. Distributions are taxable in the year received even if automatically reinvested.
Law Reference: Internal Revenue CodePractice all 110 questions free — no signup required.
Related questions on this topic
- Qualified dividends distributed by an equity mutual fund to a taxable account are generally taxed:
- A fund makes a distribution characterized as a return of capital. The immediate effect on the shareholder is:
- An investor automatically reinvests $3,000 of taxable fund distributions over several years. The effect on cost basis is that basis:
- An investor sells fund shares at a $4,000 loss on March 10 and buys shares of the same fund on March 25. The result is:
- Which cost basis method applies to mutual fund shares if the shareholder makes no election?
- An investor exchanges shares of a growth fund for shares of a bond fund within the same fund family at net asset value. For tax purposes, this exchange is:
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Series 6 — Investment Company & Variable Contracts Rep · How we review