How do capital losses in a mutual fund affect capital gain distributions?
If a fund has a significant capital loss carryover that fund will not need to make capital gain distributions until the loss carryovers are used up. This can benefit shareholders who will not pay taxes on any future gains in the fund while it still has those capital loss carryovers. A shareholder will realize any gains/losses when fund shares are sold. Mutual funds do not pass through their losses to shareholders; however, investors can use capital losses from the sale of their mutual fund shares to offset capital gains from their other investments. If there are no capital gains, or if the capital losses are larger than the capital gains, the capital loss can be used as a tax deduction. The IRS allows an annual deduction of up to $3,000 ($1,500 for married individuals filing separately) in capital losses from ordinary income and also allows investors to carry forward any additional losses to future tax years. Deductions for such losses must be taken in the investor s lifetime, since th