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An investor purchases units of an equity fund for $17.60. In which of the following circumstances would an investor potentially owe taxes on capital gains?
Suggested Answer: A
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Capital gains are realized when an investor sells a fund at a profit. Selling units at $18.80 (purchased at $17.60) triggers a taxable capital gain in a non-registered account. The feedback from the document states:
'Capital gains are generated when an investor sells an investment for more than the price paid; for example, selling a stock at a profit will generate a capital gain. Capital gains are not realized when an investment goes up in price; a sale must occur.'
26 comments · newest first
MI
Michell
3 months ago
D is definitely not taxable. Losses don't trigger taxes.
HY
Hyun
3 months ago
B is tricky. Just a valuation, no sale yet.
CA
Carmelina
3 months ago
Agreed, A makes sense. Reinvesting doesn't avoid taxes.
GL
Glennis
4 months ago
I think A is the right answer. Selling today means realizing gains.
GE
Gerald
5 months ago
D) means no gains, so no taxes there.
KE
Kenneth
5 months ago
C) is also tax-free since it's just reinvesting dividends.
MA
Malcolm
5 months ago
Wait, so B) doesn't count? That seems odd.
IS
Isidra
6 months ago
Totally agree, reinvesting doesn't avoid taxes!
UN
Una
6 months ago
A) would trigger capital gains tax.
LU
Lucia
6 months ago
Taxes, ugh. Can't we just enjoy our investment gains without the government taking a cut?
JE
Jerry
6 months ago
Haha, the correct answer is obvious. These questions are a piece of cake for us finance pros!
LA
Lauran
6 months ago
B) and D) are not correct. The fund's current value does not trigger a taxable event unless the units are actually sold.
TI
Timothy
6 months ago
C) is also a good option. Dividend distributions, even if reinvested, are considered taxable income.
YO
Yoko
7 months ago
A) is the correct answer. Selling the fund for a higher price than the original purchase price would result in a capital gain, which would be taxable.
SO
Socorro
7 months ago
I practiced a similar question where selling triggered taxes, so I'm leaning towards A, but I need to double-check my notes on reinvestments.
LE
Lenna
7 months ago
I feel like C could be tricky because reinvesting dividends doesn't usually count as a taxable event, but I could be wrong.
DO
Dominga
8 months ago
I remember something about capital gains being realized only when an asset is sold, so maybe B and D wouldn't apply here.
RO
Rosendo
8 months ago
I think option A might be the right answer since selling the fund would trigger a capital gains tax, but I'm not entirely sure about the reinvestment part.
LI
Lisha
8 months ago
I feel pretty confident about this one. I just need to remember the basic principles around capital gains and when they apply. Reviewing the study materials should help me nail this question.
BA
Barrett
8 months ago
For option A, the sale would definitely trigger capital gains taxes, since the sale price is higher than the purchase price. The other options are a bit trickier, but I think I can work through them.
CO
Colton
8 months ago
I'm a little confused on the dividend reinvestment part. Does that count as a sale even if the money stays in the fund? I'll need to double-check the rules on that.
BA
Barney
9 months ago
Okay, let me see here. I think the key is whether the fund has been sold or not. If it's just the current value, that doesn't trigger taxes, right?
LU
Luann
9 months ago
Hmm, this seems like a straightforward capital gains question. I'll need to think through the different scenarios and when taxes would be owed.
RO
Rosalind
2 months ago
Exactly! Reinvesting doesn't avoid taxes in that case.
TH
Theron
3 months ago
Yeah, selling the fund means realizing gains.
RO
Rolande
3 months ago
I think option A is the one where taxes would apply.