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A capital gains distribution is defined by the IRS as a payment from a mutual fund or an exchange-traded fund (ETF) when a security or stock is sold at a profit. Because these types of funds are ...
Mutual funds and ETFs held in tax-advantaged accounts can grow tax-free — dividends and capital gains are either deferred until withdrawal or entirely tax-free in Roth accounts.
Investors are likely to receive mutual fund capital gains distributions, along with a capital gains tax bill reflecting their profits -- especially because of sizable gains in the S&P 500 this year.
Beginning in 1942, taxpayers could exclude 50% of capital gains on assets held at least six months or elect a 25% alternative tax rate if their ordinary tax rate exceeded 50%. [11] From 1954 to 1967, the maximum capital gains tax rate was 25%. [12] Capital gains tax rates were significantly increased in the 1969 and 1976 Tax Reform Acts. [11]
The IRS would require the investor to pay tax on the capital gains distribution, regardless of the overall loss. A small investor selling an ETF to another investor does not cause a redemption on ETF itself; therefore, ETFs are more immune to the effect of forced redemption causing realized capital gains.
The category of a qualified dividend was created with the Jobs and Growth Tax Relief Reconciliation Act of 2003 ("JGTRRA"), that reduced all taxpayers' personal income tax rates and cut the tax rate on qualified dividends from the ordinary income tax rates to the lower long-term capital gains tax rates. At the same time the bill reduced the ...