Capital gain distribution that is reinvested in the fund. NON IRA

[ccarley]

My financial "advisor" said that if capital gains are reinvested in the fund it adds to your cost basis but is not taxed. I think all distributions that are not tax exempt are taxed so I was looking for a cost basis and he said its not there because the distribution was reinvested. Who is right?

[Carl]

Depends on the type of fund. Typically, a distribution is taxable income regardless of what you do with it. But that's not always true, as it depends on how things are set up. If you get a tax reporting document for the distributions, then you report it on your tax return. That does not necessarily mean it gets taxed though.

[NCperson]

@ccarley you are - capital gains distributions are taxed, whether or not they are reinvested. 

If reinvested, it adds to your cost basis (no different than using cash to buy the shares - in fact, you had cash for the nano-second between the time the distribution occured and the re-investment happened)

[Mike9241]

an exception would apply if it was a municipal bond or muni money market fund.   as long as the distribution was not a capital gain distribution.

[TomD8]

On the positive side, the capital gains distributions are taxed similar to long-term capital gains, no matter how long you hold the shares. Most investors might pay a 15% capital gains tax, rather than the potentially higher ordinary income tax rate. 

[fanfare]

a reinvested gain is taxed so you may have to sell shares of the fund to raise the cash to pay the tax.

your shares are sold FIFO unless you select otherwise ahead of taking action.

OR

get the cash for the tax elsewhere.

@ccarley 

Your "advisor" should remain in quotes.