J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

32.8 Redemptions and Exchanges of Fund Shares

When you ask the fund to redeem all or part of your shares, you have transacted a sale subject to capital gain or loss rules explained in Chapter 5. Exchanges of shares of one fund for shares of another fund within the same fund “family” are treated as sales. If you owned the shares for more than one year, your gain or loss is long term; if you held them for a year or less, your gain or loss is short term. However, if you received a capital gain distribution before selling shares held six months or less at a loss, your loss must be reported as a long-term capital loss to the extent of the capital gain distribution attributable to the sold shares. Any excess loss is reported as a short-term capital loss. This restriction does not apply to dispositions under periodic redemption plans.

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Caution

Wash-Sale Loss Disallowance

A loss on the redemption of fund shares is disallowed to the extent that within 30 days before or after the sale, you buy shares in the same fund. The wash-sale rule (30.6) is triggered even when the acquisition of new shares occurs automatically (within the 61-day period) under a dividend reinvestment plan.

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EXAMPLE

In June 2012, you bought mutual-fund shares for $1,000. In August, you received a capital gain distribution of $50, and in September you sold the shares for ...