Capital Gains from Mutual Funds – Can I apply them to a new home?
April 20th, 2010
I am purchasing my first home and need to sell several of my mutual funds for the down payment. Unfortunately, I am going to take a big hit when I have to pay the capital gains tax from the sale of the mutual funds.
Is there any way that I can apply these capital gains towards the down payment of the new house to decrease my taxes? If not, are there any other suggestions to decrease my capital gains tax?
Frankly, having my mutual funds do well enough to require capital gains tax is not a bad problem to have. It means they have done well over the past few years. I just want to know if I can do anything to improve my tax situation.
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Being a tax professional, let me say that if you sell the mutual funds and use the proceeds to pay for a house, unfortunately there is no way to shelter or hide the gains from the federal government. You will have to claim them on your tax return. The only way to delay paying taxes on gains is when you do a section 1031 exchange, but that will definitely not work selling a mutual fund and buying a house. Take pride in the fact that you have the gains, many people don’t. Also, realize that, if you held the funds for over a year, the capital gains will be taxed at only 15% for the federal government.
You should ask a professional tax consultant rather than amateures here.
Sorry a rollover of capital gains from securities is not possible. A common strategy is to sell any other securities you have by 12/31 if they have a loss to offset your gains. If so you can wait 30 days and buy the same stocks again without violating the wash sale rule.
No deferral is allowed. Make sure you calculate your basis correctly including all re-invested dividends and cap gain distributions.