Report a US capital loss on the sale of a legacy mutual fund in France
I found something that totally confused me both in the US and in France!
In 2012, I inherited 66 shares of a US municipal bond mutual fund. Over the years I have received US tax exempt dividends AND return of capital distributions from this fund. However. as all good things must come to an end, in June 2021 the fund was redeemed.
The value of the stock on the date of death was $979.43 and on the date of redemption was $96.26, a considerable difference. One might think that it is a simple capital loss.
I’ve done some research on the US side of things, and I know that I have to report these “incomes” on form 8949 and schedule D and that I have to use the Qualified Dividends and Gains Worksheet capital (because I have eligible dividends), and that a redemption is equivalent to a sale. So far so good except for having to fill out the forms and worksheet.
One thing I couldn’t find any information on is whether I have to take into account the return of capital distributions when I calculate the amount of my capital loss? The return of capital distributions certainly hasn’t been to the value of the shares when I inherited it, and the value of the fund at the time of redemption is necessarily low because it was at the time of redemption, so can I really just subtract the selling price from the DOD value? !
The other problem is on the French side. I have discovered that gains/losses on the sale of inherited shares etc. are treated differently from those purchased, but the key to this treatment is either the value of the shares when inherited (which would be in the inheritance documents) or whatever value the Taxes deem to be at the time of sale (I have found several court cases where the difference in these values has led to less value turning into more value!) .
Of course, in my case, the inheritance was received in the United States and I have the DOD award. Should I just figure out the capital loss on Form 2074 (2020 Capital Gains or Loss Statement) and say nothing about the inherited shares? ALL my investments are inherited!
You’d think such a large capital loss would raise eyebrows, although I’m sure there’s a limit to how much loss you can apply in a year. I plan to email the local tax office about this, but since the French don’t really do mutual funds, it’s going to be a little tricky to explain.
I had hoped that this would be the first year that I didn’t have to meet the nice people of Loudéac after receiving my review, given that I had to do it the last two, but I think I will come back later in the summer. At least this time we won’t have to wear masks!
All contributions to solving this dilemma will be gratefully accepted.