Mutual Fund Transfer: How to deal Capital Loss?

Question

Good morning:I was "forced" to transfer one of the mutual fund sharesthat I had (FUND A) to another mutual fund (FUND B) on Oct31st operated by same group.   I have received shares ofFUND B at its price as on Oct 31st. The description of thetransfer states "Fund Merge Redeem Non-Taxable" I had purchased shares of FUND A in one lump five years back(at the pinnacle of dot-com bubble) and consistently lostthe value since then. Thus, the price at which it wastransferred to FUND B is substantially less than theoriginal purchase price.  The net capital loss is around$3,000. My question is:I believe the cost basis for FUND B shares will be the priceof transfer as on Oct 31st.  That being the case, what isthe fate of my capital loss of $3,000 on FUND A? I don'thave any capital gains in this year.  Is there any way Iwill be able to deduct the capital loss (full or partialover next couple of years) in Federal Tax Return from EarnedIncome?  Are there any IRS Guides that would address thesecircumstances, as these could be a routine matter? Thank you in advance for any suggestions.With regards,Kyle

Barry Margolin · Accepted Answer

Since this was a non-taxable transfer, there's no tax effect at all. The cost basis and purchase date of the old shares simply transfers to the new shares. You don't get to declare any loss at the time of the transfer.

-- Barry Margolin, snipped-for-privacy@alum.mit.edu Arlington, MA

*** PLEASE don't copy me on replies, I'll read them in the group ***

Herb Smith · Answer

Actually, your cost basis remains the same as what youoriginally paid for the shares.  This was not a sale,therefore there is no capital gain or loss.

Phil Marti · Answer

It sounds like the equivalent of a tax-free merger ofcompanies.  Your basis and holding period are unchanged. See IRS Publication 550. --Phil MartiClarksburg, MD

Ira Smilovitz · Answer

Your belief is wrong. Your cost basis and holding period will be the same as they were for FUND A. You'll just spread that cost basis over a different number of shares of FUND B. You won't have any claimable capital loss (or gain) until you sell the shares. Ira Smilovitz

ed · Answer

If you have no other capital gains, you can take up to $3,000 of capital losses on Line 14 (or thereaboouts) which deducts it directly from your AGi and taxable income. You must go through the Long Term Capital Gains and Qualified Dividends Worksheet of Schedule D. Moderator: I do not believe there was a sale here, just a merger of funds.

goggleaccount · Answer

Thank you every one and I appreciate you taking time toprovide the information Kyle

Mutual Fund Transfer: How to deal Capital Loss?

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