Is "Capital return by NAV" the number to use for calculating "Growth Taxed as LTCG When Withdrawn"?

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Wolfram Volpi

(@wolfv)

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Topic starter November 14, 2022 10:17 pm

I am attempting to calculate the input numbers for PRC's TAXATION OF ASSETS IN REGULAR INVESTMENT ACCOUNTS table (on PRC > FINANCIAL ASSETS > Asset Class Taxation page) (screenshot attached).

VBTLX is the only bond in my taxable account.
"Capital return by NAV" numbers are published on https://investor.vanguard.com/investment-products/mutual-funds/profile/vbtlx#performance-fees > Annually
The average VBTLX "Capital Return by NAV" from 2007 to 2021 is 0.98%

I plugged in the 0.98% into the formula listed in the PRC manual, page 49 "Asset Class Taxation" (see attached spreadsheet).

Is "Capital return by NAV" the same as PRC's "unrealized capital gains"?
Is "Capital return by NAV" the correct number for calculating PRC's "Growth Taxed as LTCG When Withdrawn"?

Attachment : RRC_asset_class_taxation.ods

Attachment : PRC_TAXATION_OF_ASSETS_IN_REGULAR_INVESTMENT_ACCOUNTS.png

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Growth Taxed as LTCG When

Stuart Matthews

(@smatthews51)

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November 19, 2022 2:13 pm

I'm not absolutely confident of my understanding of the term "capital return by NAV". I think it refers to the annual return on an account excluding payouts for interest and dividends. So, that sounds like another way of saying "unrealized capital gains" on an annual basis and the right number for use in calculating PRC's growth to be taxed as LTCG when withdrawn. However you go about getting it, you want to arrive at this value: unrealized capital gains = the difference in the current value of the account and its cost basis.

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Wolfram Volpi

(@wolfv)

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Topic starter November 23, 2022 9:18 pm

@smatthews51

Thanks for the reply 😀

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Bill Hines, Advice-Only Flat-F...

(@hines202)

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November 25, 2022 2:21 pm

This was a tricky one. Wolfram and I had been going around and around on it for a while. When I was reading up on this, I was thinking the term was referring to the capital gains that are generated due to trading within the fund by the fund managers. The number (less than one percent) is in line with what you might find for an aggregate bond fund like VBTLX. Now I'm thinking I'll go to some other Vanguard funds and see if that's consistent with what you'd expect to find in managed/active equity funds (higher number) and index funds (should be about zero).

What that means is like any mutual fund in a brokerage account, even if you didn't do anything throughout the year, you can have some taxable gain (this .98%) due to turnover within the fund. It should be reflected in your end of year tax statement from the brokerage. Vanguard's prelim estimates are out, and final ones for 4Q are due in the first week of Dec. Maybe check the other ones from earlier quarters this year (I'm giving myself homework here...)

One point on this - if your "bonds" all consist of bond funds/ETFs in a *brokerage* account, you are taxed as LTCG if you have held those share over a year. In that case, the asset class taxation default of 5% should really be 100% taxed as LTCG when withdrawn. If you're planning on using them before being held for a year, of course then it's short term gain/regular income.

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