I am holding DPCAX and LETRX mutual funds since spring, 2007. About a month ago there was a capital gain distribution on those funds. I haven’t sold them yet and plan to hold them for another year. Do I have to pay tax on this capital distribution even though I haven’t sold the funds yet?
Posted in 
Tags:
Yes. However, it is generally taxed at long-term capital gains rates, rather than ordinary income tax rates.
If I have to, so do you. It’s nice having to pay taxes on money you’re not actually going to be seing for awhile…
Yes you do. In a mutual fund, you are a partial owner of the fund’s assets – the capital gains distribution is your share of the profit on what the fund itself sold. So whether you take it out or leave it in, it’s taxable income.
If you leave the money in though, keep track of the amount of the distribution and also any dividends that you left in. When you sell it, you’ll add those amounts to your basis, since you will have already paid tax on them.