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Does contributing to an exchange fund create a taxable event?
Does contributing to an exchange fund create a taxable event?
Updated over a week ago

Contributions to a properly-structured exchange fund do not create a taxable event. When you contribute shares to an exchange fund, you are essentially swapping part of your holdings in a single stock (or a few stocks) for a share in a diversified portfolio. This process is structured to be a tax-deferred exchange, meaning you do not realize capital gains or losses at the time of the transfer.

The original cost basis and holding period from the stocks you contributed will be transferred to your shares in the exchange fund. Tax implications are deferred until you eventually decide to sell the diversified basket of stocks you received as a distribution from the exchange fund.

This feature is particularly attractive to investors with highly appreciated stocks, as it allows them to diversify their holdings without incurring immediate capital gains taxes (which would be due if the stocks were sold outright).

By making in-kind contributions to an exchange fund, investors can achieve a more balanced investment portfolio while deferring potential tax liabilities.

Take a closer look at the benefits of exchange funds.

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