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Not an accountant ... but, my experience has been.
In doing a nav exchange in a taxable account from one fund to another is a taxable event if there are realized gains. And, for losses they can be deducted.
I assume that you are asking if you swap ABC Fund for DEF Fund, is there tax to pay? If you realize a taxable gain on the sale of ABC Fund, and if you held ABC Fund for one year or longer, that gain is subject to capital gains tax rates. Tax rates are tied to your Federal Income Tax bracket, and range from 0% in the 10-15% brackets, 15% in the 25-33% brackets, and 20% in the highest bracket. These are obviously much lower rates than earned income tax rates.
For capital gains calculation purposes, subtract the taxable cost (net initial investment plus any reinvested dividends and capital gain distributions) from the net sale proceeds. If you paid $10,000 for ABC Fund, and over the last three years you have reinvested dividends of $5,000 reinvested and capital gains distributions of $800, your taxable basis is $15,800. That is the number you use to compare to the sale proceeds to determine if there is a taxable gain. Remember that your have already declared those annual dividends and capital gains distributions on your tax returns, so they are part of the basis. If you did not reinvest, you may not include them in the basis calculations.
If by some chance you have carry forward losses from previous years, you may use these to offset gains.
So...there is no income tax due, but there may be capital gains taxes due. Brokerage firms and mutual fund companies now are required to keep track of cost basis in taxable accounts, so it is unlikely that you will have to make the calculation yourself. You will receive a 1099 interest/capital gain report for the year the sale is made. It is a copy of what is also being sent to the IRS.
Just one additional thought... If you exchange one share class for another share class of the same fund then there may be no tax implications. For instance, I exchanged the retail class of 2 Grandeur Peak funds I own for the institutional class when they lowered the institutional minimum, in a taxable account, and they both told me there would be no tax and my 1099 doesn't have anything about the exchange so it confirms what they told me.
Be careful when doing tax-free conversions. If not processed correctly, they're taxable events. I've done tax-free conversions at Fidelity. I've also had Fidelity tell me that they couldn't execute a particular conversion tax-free.
I believe it requires the cooperation of the fund company to do the transfer on their books (rather than an outsider like a brokerage effecting the exchange via a sale and purchase).
Sometimes it can't be done, period. For example Vanguard will convert Investor (and Admiral) class shares into ETF shares of the same fund tax-free. But they won't do that for four of their bond funds with ETF class shares. https://investor.vanguard.com/etf/faqs
Comments
In doing a nav exchange in a taxable account from one fund to another is a taxable event if there are realized gains. And, for losses they can be deducted.
For capital gains calculation purposes, subtract the taxable cost (net initial investment plus any reinvested dividends and capital gain distributions) from the net sale proceeds. If you paid $10,000 for ABC Fund, and over the last three years you have reinvested dividends of $5,000 reinvested and capital gains distributions of $800, your taxable basis is $15,800. That is the number you use to compare to the sale proceeds to determine if there is a taxable gain. Remember that your have already declared those annual dividends and capital gains distributions on your tax returns, so they are part of the basis. If you did not reinvest, you may not include them in the basis calculations.
If by some chance you have carry forward losses from previous years, you may use these to offset gains.
So...there is no income tax due, but there may be capital gains taxes due. Brokerage firms and mutual fund companies now are required to keep track of cost basis in taxable accounts, so it is unlikely that you will have to make the calculation yourself. You will receive a 1099 interest/capital gain report for the year the sale is made. It is a copy of what is also being sent to the IRS.
Hope this is helpful.
Derf
I believe it requires the cooperation of the fund company to do the transfer on their books (rather than an outsider like a brokerage effecting the exchange via a sale and purchase).
Sometimes it can't be done, period. For example Vanguard will convert Investor (and Admiral) class shares into ETF shares of the same fund tax-free. But they won't do that for four of their bond funds with ETF class shares.
https://investor.vanguard.com/etf/faqs