Tax Answers

February 18, 1994

Here are answers from members of the Maryland Association of Certified Public Accountants to readers' tax questions. The Sun will publish answers through April 15.

Q: I read the following statement from a book on mutual fund taxes: Subtract from your capital gain the value of the shares purchased with reinvested dividends, distributions or reinvested capital gain distributions as you pay taxes on them in the year they were distributed.

If I receive a capital gains distribution of $5,000 in December but $1,000 in dividends and capital gains were automatically reinvested in November, can I deduct this $1,000 from the $5,000 and report $4,000 in capital gains for the year?

A: No, you can't use the $1,000 to offset other distributions. All capital gains and dividends are taxable as income in the year paid or reinvested in your mutual fund account.

Incidentally, if you sell a portion of the shares in your mutual fund account, you must add to your cost for those shares the amount of capital gains or dividends that were reinvested in the mutual fund account.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary. Consult with a tax adviser for specific advice.

Readers may submit questions by phone, mail or fax. Selected questions will be answered in The Sun and The Evening Sun.

To ask a tax question by phone, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford County 836-5028, and in Carroll County 848-0338. Using a touch-tone phone, enter 6120 after you hear the greeting.

Written queries may be sent to TAX QUESTIONS, The Baltimore Sun, Business News Department, 501 N. Calvert St., Baltimore 21278. Fax questions to The Sun's the Business News Department at (410) 783-2517. Callers are encouraged, but not required, to leave their names and phone numbers should questions need to be clarified. Questions will not be answered by phone. Names and numbers will not be published.

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