Types of Investment Risk
Chapters in this video
- 0:00 Return of capital and the shrinking cost basis
- 1:56 The zero-basis trap that becomes a capital gain
- 2:41 Treasuries vs. munis and the triple tax-exempt home-state bond
- 3:11 Private activity bonds and the AMT gotcha
- 3:46 Tax-equivalent yield formula for high-bracket investors
- 4:18 The 60-day qualified dividend and one-year capital gains rules
- 5:15 Total return including unrealized paper gains
- 6:04 Rapid-fire exam recap
What this video covers
- Why return of capital (ROC) is not taxable when received, how it reduces cost basis, and what happens once that basis hits zero
- The federal vs. state tax treatment of U.S. Treasuries compared to municipal bonds, and the triple tax-exempt status of in-state munis
- Why private activity bonds (PABs) can trigger the alternative minimum tax (AMT) even though they are municipal
- The tax-equivalent yield (TEY) formula: muni yield divided by (1 minus marginal tax rate), and why higher brackets favor munis
- The 60-day holding period around the ex-dividend date required for qualified dividend treatment
- The "more than one year" rule for long-term capital gains, and why exactly one year still counts as short-term
- How total return combines income, realized gains, and unrealized paper gains over the initial investment
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