Tax planning query using fund pages

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Topic Author
restingonmylaurels
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Tax planning query using fund pages

Post by restingonmylaurels »

Trying to do a little tax planning for the year.

On each VG fund's page, under Distributions, there is a realized gain amount per share. It does not match to distributed capital gains made this year.

Can this value be interpreted as the current year's total capital gains realized so far, which will be distributed to shareholders within this year?

Does it include or not include any capital gain distributions made earlier this year, in March?

Is this value, even though it does not say, "net" realized gains offset by realized losses or is this just the realized gains not offset by any realized losses?
Topic Author
restingonmylaurels
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Re: Tax planning query

Post by restingonmylaurels »

This has not gotten any traction, maybe I asked the question poorly.

it concerns that Distributions tab on each fund's webpages, where there is a value titled "Realized Gains."

The only explanation on the page says "Realized gains & losses. A realized capital gain (or loss) is an increase (or decrease) in the value of a security that is "real" because the security has been sold by the portfolio manager. The capital gains and losses are "realized" by the fund, and any distributions to shareholders as a result of realized gains (adjusted for any realized losses) are taxable during the tax year in which the security was sold.Realized losses can be used to offset realized gains in an attempt to reduce taxable gains. If realized losses are higher than realized gains, a fund can "carry forward" these excess losses to offset future gains."

If, for example, that "Realized gain" field stated $1.00. Additionally, in March 2022, you had been distributed a capital gain of $0.40.

Questions:
1. Does that displayed gain represent future distributions later this year of $1.00/share or would it be netted with the March distribution, so $0.60?

2. Is the displayed value a "net" realized gain (net of realized losses) or only the realized gains?
Penguin
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Re: Tax planning query using fund pages

Post by Penguin »

This is more information from Vanguard.
Perhaps it may answer your questions.
More about realized & unrealized gains & losses
Understand the tax implications

A fund's realized and unrealized capital gains and losses can provide helpful information about the tax implications of holding a particular fund in a taxable account. (These tax implications don't apply to investors holding a fund in a tax-deferred account, such as an IRA or employer-sponsored retirement plan.)
Realized gains & losses

A realized capital gain (or loss) is an increase (or decrease) in the value of a security that is "real" because the security has been sold by the portfolio manager. The capital gains and losses are "realized" by the fund, and any distributions to shareholders as a result of realized gains (adjusted for any realized losses) are taxable during the tax year in which the security was sold.
Realized losses can be used to offset realized gains in an attempt to reduce taxable gains. If realized losses are higher than realized gains, a fund can "carry forward" these excess losses to offset future gains.
Unrealized gains & losses

An unrealized capital gain (or loss)—also called a "paper profit or loss"—is an increase (or decrease) in the value of a security that isn't "real" because the security hasn't been sold. When a portfolio manager sells a security, however, the capital gains and losses become "realized" by the fund, and any realized gains (adjusted for any realized losses) are taxable during the tax year in which the security was sold.
Funds with low turnover rates, such as index funds, tend to have more unrealized gains than actively managed funds and are less likely to pass taxable gains on to investors.
A fund's unrealized appreciation or depreciation figures are valuable because they can give an idea of whether a fund would need to distribute any gains if all of its securities were sold. Such information may help you determine your potential exposure to taxable distributions.
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cas
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Re: Tax planning query

Post by cas »

My understanding is...
restingonmylaurels wrote: Mon Jul 04, 2022 6:05 am

1. Does that displayed gain represent future distributions later this year of $1.00/share or would it be netted with the March distribution, so $0.60?
The March distribution was from net gains realized in 2021 after the accounting closed for the main distribution that happens in December. (i.e. all those net gains happened in between sometime-in-late-2021 and 12/31/2021.

The YTD realized gains/losses on the Distributions page are the *net* gains/losses realized in between 1/1/2022 and whatever date is shown (currently 5/31/2022). Note that this number can change drastically in either direction before the December distribution, because there is quite a bit of time left in the year, and a lot of unpredictable things can happen between now and the end of the year that might cause realized gains or losses.
2. Is the displayed value a "net" realized gain (net of realized losses) or only the realized gains?
Net. e.g. you can go look at something like Total Stock Market (VTSAX) and see that it is currently showing a net realized loss.

(Note: IRS regulations say that net realized losses are not distributed to shareholders, but are carried over to future years to net against future realized gains.)
Topic Author
restingonmylaurels
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Re: Tax planning query

Post by restingonmylaurels »

cas wrote: Mon Jul 04, 2022 7:53 am My understanding is...
restingonmylaurels wrote: Mon Jul 04, 2022 6:05 am

1. Does that displayed gain represent future distributions later this year of $1.00/share or would it be netted with the March distribution, so $0.60?
The March distribution was from net gains realized in 2021 after the accounting closed for the main distribution that happens in December. (i.e. all those net gains happened in between sometime-in-late-2021 and 12/31/2021.

The YTD realized gains/losses on the Distributions page are the *net* gains/losses realized in between 1/1/2022 and whatever date is shown (currently 5/31/2022). Note that this number can change drastically in either direction before the December distribution, because there is quite a bit of time left in the year, and a lot of unpredictable things can happen between now and the end of the year that might cause realized gains or losses.
2. Is the displayed value a "net" realized gain (net of realized losses) or only the realized gains?
Net. e.g. you can go look at something like Total Stock Market (VTSAX) and see that it is currently showing a net realized loss.

(Note: IRS regulations say that net realized losses are not distributed to shareholders, but are carried over to future years to net against future realized gains.)
Thanks, very insightful.

So the appropriate description for this value is: all undistributed realized gains offset by any realized losses (current year and carried forward)?

Would be interesting to watch this value change month by month, if there was a historical record available.

Not sure why VTSAX would have realized losses. Redemptions? Index maintenance issues?
cas
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Re: Tax planning query

Post by cas »

restingonmylaurels wrote: Mon Jul 04, 2022 10:43 am Not sure why VTSAX would have realized losses. Redemptions? Index maintenance issues?
1) Just because the Morningstar "Investment Flows" chart shows Vanguard Total Stock in net monthly inflows doesn't mean that there aren't individual days where outflows exceed inflows, so that the manager has to liquidate some assets to meet redemptions.

2) If liquidating assets is necessary, fund managers find loss harvesting a useful tool, just like individual investors find it a useful tool.

From a Morningstar article I've referred to before, Zombie Index Funds are Delivering Frightening Tax Bills, which contains useful general information on how cap gain distributions arise or not:
What else might cause turnover in a fairly mundane index portfolio? Redemptions can be a factor. When investors want out, a manager might have to raise cash to meet redemption requests. In the case of managing an index portfolio, tracking the fund's benchmark is job one. So, portfolio managers have limited flexibility when it comes to selecting which securities to sell. They can't cherry-pick shares that have embedded losses to meet redemptions in order to avoid unlocking gains. They can, however, look to liquidate those tax lots in the portfolio that have the highest cost basis. This can help minimize any capital gains realized in the process. [. . .] But if redemptions are large, persistent, and overwhelm inflows, that's another story altogether.
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grabiner
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Re: Tax planning query

Post by grabiner »

restingonmylaurels wrote: Mon Jul 04, 2022 10:43 am Not sure why VTSAX would have realized losses. Redemptions? Index maintenance issues?
Index changes. When a stock leaves the index, or when a stock is added to the index and funds have to sell some holdings to get the market weight in the new stock. they will realize capital gains or losses. With the ETF structure, the funds are more likely to realize losses, as they have gotten rid of lower-basis shares through the creation-redemption process. (Non-ETF small-cap or value indexes frequently realize gains, because small-cap or value stocks which rise in price become large-cap or growth stocks and must be sold by their indexes.)
Wiki David Grabiner
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