Generating Retirement Ownership through Long-Term Holding
This bill would add a new provision to the Internal Revenue Code allowing individuals who receive capital gains distributions from regulated investment companies (RICs) to defer recognizing those gains if the distributions are automatically reinvested in more shares of the same fund. In other words, when you receive a capital gains distribution that you reinvest through a dividend reinvestment plan, you would not owe taxes on that gain right away. Instead, the gain would be taxed later—when you sell the shares or, in most cases, upon the investor’s death. The bill also creates rules for how to treat the holding period and how to compute the gain when it is finally recognized, and it applies to taxable years ending after the date of enactment. It excludes certain taxpayers (estates or trusts, and some individuals with particular deductions) and requires regulations to implement the provision.
Key Points
- 1Nonrecognition of gain: If a capital gain dividend from an RIC is automatically reinvested, the gain is not recognized for tax purposes at the time of receipt.
- 2When gain is recognized: The deferred gain is recognized later upon (a) a sale or redemption of stock in the distributing company, or (b) the death of the individual. Upon sale, the recognized amount corresponds to the portion of shares sold; upon death, any remaining unrecognized gain generally becomes taxable in the decedent’s final tax year.
- 3Holding period: Shares acquired through reinvestment are treated as held for one year and one day for purposes of this provision.
- 4Exceptions: The provision does not apply to certain individuals (e.g., those for whom another taxpayer can take a Sec. 151 deduction for a taxable year beginning in the same calendar year) and does not apply to estates or trusts.
- 5Implementation: The Secretary of the Treasury would issue regulations to implement the section; the bill also makes conforming amendments to cross-references in existing law and adds Sec. 1046 to the table of sections.