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A money market fund sale has no tax consequences. A money market fund is a special breed of mutual fund. Due to its special structure, purchases and sales of money market fund shares generate no tax liability. However, you can be taxed on any dividend income earned, depending on the type of fund.

Mutual Fund Structure
A mutual fund is an investment company that raises money by selling its shares to investors and invests the proceeds in marketable securities such as stocks and bonds. Mutual fund shares fluctuate with the market value of the underlying securities. When an investor buys and sells shares in a mutual fund, he may have a capital gain or loss, depending on the difference between the price he paid and the price he received for the fund shares. But money market funds have no such tax liability.

Constant Share Price
Money market funds invest in short-term, high-quality money market instruments that mature in 200 days or less. Because of the short duration, they can keep their share price constant at $1. Instead, the yield that investors receive fluctuates daily. Since the share price remains constant at $1, there is no taxable gain or loss when money market fund shares are bought and sold.

Tax Liability
Some money market funds are tax-free because they invest in tax-free municipal securities, but most funds pay monthly dividends that are taxable. Dividend income is the only tax liability.

Losses
Mutual funds are not insured. Retail investors have never lost money in money market funds, but there is no guarantee. If a money market fund suffers a substantial loss of principal, it may be forced to lower its share price below $1. If that happens and an investor sells, she will have a tax loss, which will be the difference between the price she paid for the shares ($1) and the sales price she receives.