Types of Investment Returns
Chapters in this video
- 0:00 Municipal bond fund tax exemption and IRA mismatch trap
- 1:06 Form 1099-DIV Box 12 versus Box 13: exempt interest and AMT bonds
- 3:09 Return of capital: basis reduction mechanics and source notice
- 5:04 Ordinary, qualified, and long-term capital gain distributions
- 7:02 Reinvested distributions: phantom income and basis increase
- 7:53 Rapid-fire exam recap
What this video covers
- Why a municipal bond fund inside an Individual Retirement Account (IRA) is a classic suitability failure, wasting the federal tax exemption for lower yield
- Where exempt-interest dividends and private-activity-bond interest appear on Form 1099-DIV (Box 12 versus Box 13) and which carries Alternative Minimum Tax (AMT) exposure
- What return of capital (ROC) actually is: your own principal coming back, not currently taxable but reducing cost basis dollar for dollar
- How cumulative ROC exceeding original basis triggers immediate capital gain taxation, and where ROC appears on Form 1099-DIV (Box 3)
- Why conduit treatment matters: a mutual fund cannot convert ordinary bond interest into qualified dividends by passing them through
- The 12-month holding period rule for long-term capital gain distributions in Box 2A, and why the fund's holding period controls, not the shareholder's
- Why reinvested distributions are fully taxable in the year received despite no cash touching your hand, and how reinvestment increases basis to prevent double taxation
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 6 course also includes adaptive practice questions and spaced-repetition flashcards.