election 1291 final dispositon and past dividens

mcaps · Post by **mcaps** » Fri Mar 06, 2015 6:18 pm

I've been contemplating the 8621, due to lack of documentation and amount. so if I am correct if I elect the 1291, I would have to pay tax on my final distribution plus (penalty)tax and interest. in addition I would have to pay tax on any past "dividends" received.

Am I understanding this correct?

thanks,
mcaps.

mcaps · Post by **mcaps** » Fri Mar 06, 2015 6:22 pm

forgot to add...

Would not the adjusted cost basis take care of any gains/losses throughout the holding period?

MGeorge · Post by **MGeorge** » Mon Mar 09, 2015 8:54 am

Hello,

I'm not sure I understand. Any dividends received in prior tax years should have been reported as ordinary dividends in those years. You might be getting confused by the line items regarding past dividends in the lines of form 8621, but this calculation is to determine whether or not you have had an "excess distribution". Effectively, you'll report only the dividend from the present tax year, and if you have sold any units of the fund, you will report the capital gain.

Either way, you should only pay tax on this year's dividend, the effective rate you pay depends on whether or not it is considered an excess dividend.

Also, one doesn't need to elect 1291, it is the default. The only thing you can "elect" is 1296 (mark to market) or 1293 (QEF).