Re: Capital Loss Exemption
You trigger capital gains when you sell a position at a profit. Here are 3 scenarios:
a. You put $10,000 into a Vanguard account and buy Mutual Fund A. At the end of the year, you continue to own Mutual Fund A, but the value has increased to $11,000. No capital gains yet.
b. You put $10,000 into a Vanguard account and buy Mutual Fund A. In December, you sell all of your shares for $11,000. You leave the money in your Vanguard account and use it to buy shares of Mutual Fund B. You have a capital gain of $1,000 that you will have to report to the IRS.
c. You put $10,000 into a Vanguard account and buy Mutual Fund A. In December, you sell all of your shares for $11,000. You withdraw the money from Vanguard and buy a Yugo. You have a capital gain of $1,000 that you will have to report to the IRS.
Whether you withdraw the money from the account or not, you still have a capital gain based on your sale of the mutual fund shares.
Similarly, you can't report a capital loss until you actually sell the position. Again, it doesn't matter whether you withdraw the money from the Vanguard account, though. Change the above examples to "at the end of the year the value was $9,000" and you get the results for capital losses.
(There is an exception for worthless stock, like for bankrupt companies, but whatever.)
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