Types of Investment Returns
Chapters in this video
- 0:00 Return of capital and the cost basis step-down
- 2:41 Municipal bonds and the tax-equivalent yield formula
- 4:04 Private activity bonds and the AMT trap
- 4:28 Qualified dividends and the 60-day holding rule
- 5:03 Treasuries versus munis and the one-year-and-a-day gain
- 6:13 Total return including unrealized gains
- 7:23 Rapid-fire exam recap
What this video covers
- Why return of capital is not taxable on receipt, how it steps down cost basis, and what happens the moment basis hits zero
- How to use the tax-equivalent yield formula: municipal yield divided by (1 minus the marginal tax rate), and why high brackets make munis more attractive
- Why private activity bonds can trigger the alternative minimum tax (AMT) even though most municipal interest is federally tax-exempt
- The exact reversal between U.S. Treasury interest (federal taxable, state exempt) and municipal interest (federal exempt, often state exempt in-state)
- The 60-day holding period inside the 121-day window around the ex-dividend date that qualified dividends require for preferential rates of 0%, 15%, or 20%
- The one-year-and-a-day trap that separates short-term capital gains (ordinary income) from long-term capital gains (preferential rates)
- How total return combines income, realized gains, and unrealized gains over the initial investment, and why you do not need to sell to count the gain
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