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Tax Exempt Bond Fund - Capital Gains RRS feed

  • Question

  • Using Money 2006.

    My mother owns a Long Term Tax Exempt Bond Fund of which she sold part in December.  She has been reinvesting dividends monthly for years.  I can minimize the gain by using LIFO.  If I add up the monthly distributions until the total of the shares purchased equals the number of shares sold in December that will give me the appropriate lots.  The sum of the dollar distributions for those lots should be my basis, right?  The difference between the proceeds from the December sales and this basis is my gain or loss, right?  If I do this via an Excel spreadsheet it results in a loss of about $300.

    I have been able to properly assign the shares in Money using the Portfolio Manager but Money produces a gain of over $6,800.  Am I doing something wrong or can Money just not handle this?

    TIA

    Tuesday, January 4, 2011 12:33 PM

All replies

  • I believe that your analysis is correct and MSMoney should properly calculate the gain or loss.  When you enter a "Sell" transaction for the shares, MSMoney should pop up a screen that lets you select "Let me specify which shares to sell or transfer".  If this happens you can choose the shares to sell yourself or let MSMoney choose the shares to minimize the capital gain.

    If you don't get the pop-up window, maybe you previously selected "Always use the FIFO method for my investments"?  In that case, go to Tools > Settings and uncheck "Track all investments as FIFO".
    Tuesday, January 4, 2011 3:54 PM
  • There is a good chance that the mutual fund company calculated a basis for you using its defaults. You might look at that number for comparison, at least. That calculated basis is not reported to the IRS at this time. You are not limited to that calculation.

    In US law, the shares sold default to the first ones acquired unless you identified the shares to sell to the FI and the FI noted it on the paperwork.

    In Money, a fund can have three methods of determining the basis.  IRS rules require you stick with
    the averaging method the first time you sell with that method for a given fund.

      AverageCostBasis(DoubleCategory) [default initially in Money]

      AverageCostBasis(SingleCategory) [report by many fund companies]

      ActualCostBasis

    You select the method in the Details for each fund.  Note that the
    method of computing the basis of the mutual fund shares you sell is
    independent of which shares you are selling.  Yes, that statement
    sounds strange.  By default, you are still selling FIFO.  The tax
    cost *basis* of the shares you sell will vary according to the
    CostBasis selection in Money.  Note that stocks are always
    ActualCostBasis, but you may be able to identify which shares you
    are selling.

    Note that Money has a CapitalGainsEstimator for use before entering a sale. [In Money Plus, that is
    Taxes->CapitalGainsEstimator->EstimateCapitalGainsTax].  The
    CapitalGainsEstimator does not correctly account for the averaging
    methods.  It uses the ActualCostBasis in its numbers, regardless of
    the setting.  This is correct for stocks.  Fortunately, this
    anomaly does not carry forth to the tax report generation for your
    actual sales.

    This is ignoring the potential that a wash sale situation could have arisen. That could complicate things if you were to consider that.

    Tuesday, January 4, 2011 7:44 PM
    Moderator