The mutual fund industry is lauding proposed legislation that would allow fund investors to defer tax payments on reinvested capital gain dividends until they sell fund shares.
A House version of the bill was submitted late Tuesday by Rep. Paul Ryan (R., Wis.), who serves on the tax writing Ways and Means Committee. If approved, the legislation would enable fund investors to defer payment of capital gains taxes until selling their investment, which would bring the tax treatment of fund investors in line with stock investors.
The proposal “will benefit tens of millions of mutual fund investors and fuel more long-term investment for the economy,” said Matthew Fink, president of the Investment Company Institute, the primary lobbying group for the fund industry. He said the measure would extend to fund investors the “commonly understood principle” that investors pay capital gains taxes only when they sell their winning investments and lock in their gains.
Under the current tax code, mutual fund investors must pay long-term capital gains taxes on dividend distributions even when they leave the dividends in the fund. The proposal would apply to taxable years ending after the bill’s enactment.