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I have been contributing to a mutual funds account (non-retirement) each month. Since, it is a non-retirement account I can pull out funds anytime I want. I want to ask if I pull out part of the funds within a year will it incur short term capital gains or long term capital gains. My main confusion is that each month, I contribute some amount so if I pull out the money will it use the initial contribution/funds first and incur long term capital gains or will it use latest funds and incur short term capital gains.

I am in USA.

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  • You probably know this but just to be clear, it's the selling that's the taxable event, not what you do with the money afterward. Even if you sell and let the money sit in the same brokerage you held the fund, the sale still needs to be reported on your taxes.
    – blm
    Jul 7 at 2:27
  • @blm Yes I know. I am confused by your comment :(
    – Mary Doe
    Jul 9 at 12:11

1 Answer 1

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If your broker tracks individual lots for this mutual fund, you should be able to identify specific lot you want to liquidate and depending on when you opened the position, you'll know if it is a short or long term position.

You can also use the "average" method (See Pub. 550), for identical shares acquired over time. You'd still need to separate short and long positions (and DRIP positions, see the pub), but you wouldn't need to identify each position separately on redemption.

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    Note that if you don't specify, it's assumed to be first-in first-out, so you'll likely incur long-term gains/losses.
    – Barmar
    Jul 5 at 13:19
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    And once you use the average method you have to keep using that in the future for that fund, since all the lots have been effectively combined.
    – Barmar
    Jul 5 at 13:20
  • For any securities acquired in US after 2012-14 (depending on type) the broker, or fund company if you buy trad fund (not ETF) directly, MUST track lots and basis and MUST provide them to you on 1099B for the year you sell. IME they track all holdings (even older ones) and provide the info continuously on their website and often on monthly statements as well. @Barmar IME they default to FIFO except trad funds (not entirely clear in this Q) to average -- at least if you have distributions reinvested as I do -- but YMMV. Jul 6 at 5:06

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