Why did I get hit with capital gains? I didn’t sell my investment!

Reginald A.T. Armstrong •


After years of not distributing capital gains to investors, most US focused managed investments have “used up” the capital losses that resulted from the crash of 2008-2009. Consequently, after a strong year for US equities, many managed investments distributed capital gains in November and December. Investors may get a surprise when they get their 1099s in February.

Keep in mind, however, that while you may have to pay taxes on those gains, if the gains were reinvested, they raise your cost basis. This means that when you eventually sell the investment you won’t have to pay taxes again on that distribution.

Those investors in higher tax brackets especially want to watch taxable nonqualified distributions and short-term capital gains as these are taxed at your marginal tax bracket plus the 3.8% Medicare Surtax on investment income (if you are subject to it based on income).

Please see your financial and tax advisors to go over your personal situation. Ask them about the tax efficiency of your investments and whether assets are properly located in taxable versus tax-sheltered accounts.

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