I received short and long-term CGDs in December 2022 from my Maryland Tax-Free Bond Fund (MDXBX) investment. This rarely occurs - I read the last year of CGDs was 2018. My broker 1099-DIV statement included the short and long-term CGDs on lines 1 and 2.
Monthly dividends are completely tax free as I am a Maryland resident. Understand if I sell shares and realize gains, those gains are taxable.
How about CGDs?
The state tax treatment of fund dividends can be determined by multiplying the percentage by the fund's tax-free dividend income as shown in Box 12 of the Form 1099-DIV.
With regards to the taxability of CGDs (capital gain distributions) from a Maryland Tax-Free Bond Fund, there are couple things to consider:
It appears that CGDs from state tax-free bond funds may be taxable. It is recommended to consult a tax professional or refer to the official tax laws in the state of Maryland to get a clear understanding of the taxability of the CGDs from your Maryland Tax-Free Bond Fund.
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