Mutual fund

I bought a mutual fund on 5/8/2013 for $100,000. The mutual fund paid dividend/capital gain since then so my account value is $110,000 now.

If I sell $100,000 (The original amount that I put in) on 1/1/2014, will I have to pay capital gain tax in 2014?

My guess is no since I withdrew only the principal amount that I put in.

Am I correct?

Answer :

You need to start with Form 1099-B. Anytime you sell a mutual fund, you will receive a 1099-B at year's end(in this case at year of 2014’s end) outlining the sales proceeds for each transaction. Your first step is to match the proceeds from any sales with the respective purchase price.As you sell it for $100K, then, there is no gain/loss on the sale of the mutual fund.However, because a mutual fund actually holds the underlying securities in its name, the mutual fund pays several types of dividends and distributions that the mutual fund has received on the underlying securities. You must report all mutual fund dividends and distributions, including dividends reinvested in the mutual fund, on your tax return. Your mutual fund will send you Form 1099-DIV. Your mutual fund will also send you instructions on where to enter the tax information from the Form 1099-DIV onto your tax return. The ordinary dividends from a mutual fund are entered on Form 1040, Schedule B, Line 5. This figure is then carried to Form 1040, Line 9.

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