Do I Pay Any Taxes on Ginnie Mae Funds if I Buy & Sell the Same Year?
If you earned a profit from the Ginnie Mae fund investment, you will be liable for some taxes. The length of time you owned the fund helps determine how much in taxes must be paid. As a bond fund, the Ginnie Mae fund can generate several different types of taxable income.
Ginnie Mae Dividends
Most Ginnie Mae funds pay dividends monthly. The dividends are your proportional share of interest the fund earned from the Ginnie Mae bonds in its portfolio. Unless you owned shares of the fund for less than a month, you earned dividends from the fund. Any dividends your earned will be reported on an IRS Form 1099, and those dividends count as taxable income for the year. Even if you reinvested the dividends, they are still taxable income for the year the dividends were paid.
Capital Gains
If you sold your Ginnie Mae fund shares for more than you paid for them, you realized a capital gain, and that gain is taxable under the capital gain rules. You have a taxable capital gain only if you have sold the shares. If the shares were owned for less than one year when sold, you will have a short-term capital gain. Shares owned for longer than a year produce long-term capital gains. Long-term gains are taxed at a lower rate than short-term gains.
Your Cost Basis
Whether or not you have a capital gain is based on the value you received when you sold the shares and your cost basis in the shares. If you have reinvested the dividends from the Ginnie Mae fund, the dividends increase the cost basis and reduce the amount of taxable capital gain, but the dividends still will be taxed as dividend income. The important factor, if the dividends were reinvested, is to make sure the dividends are included in your cost basis to avoid double taxation on the dividends you earned.
Write Off a Loss
If you lost money on your short-term Ginnie Mae investment, the loss can be written off on your taxes. Capital losses must first be used to offset capital gains for taxes. If you then have any excess losses, up to $3,000 per year can be used to reduce other taxable income. As with a capital gain, determination of a capital loss is dependent on your cost basis in the fund and the value received when the fund was sold. You may end up with both taxable income due to the dividends and a short-term capital loss due to the share price when the fund was sold.
References
Writer Bio
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.