In the world of investments and taxation, the concept of phantom tax is often misunderstood, it is a situation in which refers to a situation where an investor needs to pay taxes on income, or gains which have not been received in the form of cash or some physical assets. This phenomenon can also have impactful implications for investors which affect their tax liabilities, and financial decisions as well.
Let us move ahead to find out what does Phantom tax mean so that you have a better understanding of the concept.
Phantom Tax – Meaning and examples
It is also known as Phantom income or in some cases dry income, it occurs when an investor is subject to taxation on the growth in their investment value or recognition of gains although they haven’t liquidated the investment they received or haven’t got the gains in cash. It can happen in many investments such as bonds, stocks, real estate, etc.
Depreciation in real estate, unrealized gains on stocks, zero-coupon bonds, mutual funds and reinvested dividends are some of the most common examples which you must know. After understanding phantom tax meaning through this blog we are sure you can now know how it works and in what fields it is common.
