Ask The Hammer – UGMAs and UTMAs

Key Takeaways

• Calculate your cost basis by finding the original purchase price of the fund, then add any reinvested dividends over the years—missing reinvested dividends causes people to overpay taxes significantly
• Request old account statements from the investment custodian to document the initial purchase amount and dividend reinvestment history; if statements are unavailable, ask the person who made the gift about the original investment amount
• Fund exchanges within the same family (e.g., American Century to another American Century fund) are taxable events—they trigger capital gains tax just like selling and buying elsewhere, with the main advantage being no commission fees
• If you recently reached age of majority with minimal other income, consider liquidating the fund now to take advantage of the 0% long-term capital gains rate available to single filers in the 10-12% ordinary income brackets
• Exchanges are not treated as 1031 exchanges (like real estate); you will owe capital gains tax on any appreciation between the original purchase price and current value when selling mutual fund investments