Tax Implications
Chapters in this video
- 0:00 Subchapter M conduit treatment and the 90% rule
- 1:57 Why the fund's holding period controls your tax rate
- 2:47 The phantom tax trap of buying before a distribution
- 3:31 Ranking pooled investments by tax efficiency
- 4:08 Why REIT distributions are ordinary income, not qualified dividends
- 5:19 Same-family fund exchanges are always taxable
- 6:10 Rapid-fire exam recap
What this video covers
- Why regulated investment companies avoid fund-level taxation under Subchapter M by distributing at least 90% of net investment income to shareholders
- How the holding period of the fund's underlying securities (not the investor's holding period) determines whether capital gains distributions are taxed as long-term or short-term
- Why buying a mutual fund immediately before a capital gains distribution creates phantom tax liability with zero economic gain, and why checking distribution dates is an adviser best practice
- How to rank pooled investment vehicles from most to least tax efficient: index exchange-traded funds (ETFs), index mutual funds, actively managed funds, then non-traded real estate investment trusts (REITs)
- Why REIT distributions are taxed as ordinary income despite being called dividends, and why they never qualify for preferential qualified dividend rates
- Why exchanging shares between funds in the same family is always a taxable event even though no cash is received by the investor
- The 90% distribution threshold that applies to both regulated investment companies under Subchapter M and REITs maintaining their special tax status
Read the full lesson, free
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