Capital Gain Distributions

Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by regulated investment companies (commonly called mutual funds ) and real estate investment trusts (REITs). They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. Report capital gain distributions as long-term capital gains regardless of how long you owned your shares in the mutual fund or REIT.

If you receive capital gain distributions on mutual fund or REIT stock you hold 6 months or less and sell at a loss, see Loss on mutual fund or REIT stock held 6 months or less under Holding Period in chapter 15.

Undistributed capital gains of mutual funds and REITs. Some mutual funds and REITs keep their long-term capital gains and pay tax on them. You must treat your share of these gains as distributions, even though you did not actually receive them. However, they are not included on Form 1099-DIV. Instead, they are reported to you on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.

Report undistributed capital gains as long-term capital gains in column (f) on line 11 of Schedule D (Form 1040). The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. You take credit for this tax by including it on line 64, Form 1040, and checking box a on that line. Attach Copy B of Form 2439 to your return, and keep Copy C for your records.

Basis adjustment. Increase your basis in your mutual fund or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid.

Additional information. For more information on the treatment of distributions from mutual funds, see Publication 564.

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