When you ask the fund to redeem all or part of your shares, you have transacted a sale subject to capital gain or loss rules explained in Chapter 5. Exchanges of shares of one fund for shares of another fund within the same fund “family” are treated as sales. If you owned the shares for more than one year, your gain or loss is long term; if you held them for a year or less, your gain or loss is short term. However, if you received a capital gain distribution before selling shares held six months or less at a loss, your loss must be reported as a long-term capital loss to the extent of the capital gain distribution attributable to the sold shares. Any excess loss is reported as a short-term capital loss. This restriction does not apply to dispositions under periodic redemption plans.
Determining which mutual-funds shares are being sold is necessary to figure your gain or loss and whether the gain or loss is short term or long term (32.9).
You determine your holding period by using the trade dates. The trade date is the date on which you buy or redeem the mutual-fund shares. Do not confuse the trade date with the settlement date, which is the date by which the mutual-fund shares must be delivered and payment must be made. Most mutual funds will show the trade date on your purchase and redemption confirmation statements.
Your holding period starts on the day after the day you bought the shares (the trade date). This same date of each succeeding month is the start of a new month regardless of the number of days in the month before. The day you dispose of the shares (trade date) is also part of your holding period.
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