| Publication 564 |
2008 Tax Year |
Publication 564 - Main Contents
Tax Treatment of Distributions
A distribution you receive from a mutual fund may be an ordinary dividend, a qualified dividend, a capital gain distribution,
an exempt-interest
dividend, or a nondividend distribution. The fund will send you a Form 1099-DIV or similar statement telling you the kind
of distribution you
received. This section discusses the tax treatment of each kind of distribution, describes how to treat reinvested distributions,
and explains how to
report distributions on your return.
You may be treated as having received a distribution of capital gains even if the fund does not distribute them to you. See
Undistributed
capital gains under Capital Gain Distributions.
Community property states.
If you are married and receive a distribution that is community income, one-half of the distribution is generally
considered to be received by each
spouse. If you file separate returns, you must each report one-half of any taxable distribution. Get Publication 555, Community
Property, for more
information on community income.
If the distribution is not considered community income under state law and you and your spouse file separate returns,
each of you must report your
separate taxable distributions.
Share certificate in two or more names.
If two or more persons, such as you and your spouse, hold shares as joint tenants, tenants by the entirety, or tenants
in common, distributions on
those shares are considered received by each of you to the extent provided by local law.
Certain year-end dividends received in January.
Dividends declared and made payable by mutual funds in October, November, or December are considered received by shareholders
on December 31 of the
same year even if the dividends are actually paid during January of the following year.
Tax-exempt mutual fund.
Distributions from a tax-exempt mutual fund (one that invests primarily in tax-exempt securities) may consist of ordinary
dividends, capital gain
distributions, nondividend distributions, or undistributed capital gains like any other mutual fund. These distributions generally
are treated the
same as distributions from a regular mutual fund.
Distributions designated as exempt-interest dividends are not taxable. (See Exempt-Interest Dividends, later.)
An ordinary dividend is a distribution by a mutual fund out of its earnings and profits. Include ordinary dividends that you
receive from a mutual
fund as dividend income on your individual income tax return.
Ordinary dividends are the most common type of dividends. They will be reported in box 1a of Form 1099-DIV or on a similar
statement you receive
from the mutual fund.
Qualified dividends.
Many ordinary dividends you received are also classified as qualified dividends. The amount of your qualified dividends
will be shown in box 1b of
Form 1099-DIV or on a similar statement you get from the mutual fund.
Qualified dividends are taxed at the same maximum tax rates that apply to a net capital gain. They are taxed at 15%
if the regular tax rate that
would apply is 25% or higher. They are taxed at 5% if the regular tax rate that would apply is lower than 25%.
To be a qualified dividend subject to the 5% or 15% rate, a dividend must meet all of the following requirements.
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The dividend must have been paid by a U.S. corporation or a qualified foreign corporation. See chapter 1 of Publication 550
for the
definition of a qualified foreign corporation.
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The dividend must not be of a type excluded by law from the definition of a qualified dividend. See chapter 1 of Publication
550 for a list
of these types of dividends.
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You must meet the holding period requirement (discussed next).
Holding period.
You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend
date. The ex-dividend date
is the first date following the declaration of a dividend on which the buyer of a stock will not receive the next dividend
payment. When counting the
number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it.
More information.
See chapter 1 of Publication 550 for more information about qualified dividends.
Capital Gain Distributions
These distributions are paid by mutual funds from their net realized long-term capital gains. The Form 1099-DIV (box 2a) you
receive or the fund's
statement will tell you the amount you are to report as a capital gain distribution. Capital gain distributions are taxed
as long-term capital gains
regardless of how long you have owned the shares in the mutual fund.
Undistributed capital gains.
Mutual funds may keep some of their long-term capital gains and pay taxes on those undistributed amounts. You must
report your share of these
amounts as long-term capital gains, even though you did not actually receive a distribution. You can take a credit for your
share of any tax paid
because you are considered to have paid it.
Form 2439.
The fund will send you Form 2439, instead of Form 1099-DIV, showing your share of the undistributed long-term capital
gains in box 1a and any tax
paid by the mutual fund in box 2. Attach Copy B of Form 2439 to your return.
Increase to basis.
When you report undistributed capital gains from a mutual fund, you must increase your basis in the shares. You must
keep Copy C of Form 2439 to
show this increase. See Adjusted Basis, later.
Exempt-Interest Dividends
A mutual fund may pay exempt-interest dividends to its shareholders if it meets certain requirements. These dividends are
paid from tax-exempt
interest earned by the fund. Since the exempt-interest dividends keep their tax-exempt character, do not include them in income.
However, you may need
to report them on your return. See Information reporting requirement, next. The mutual fund should send you a Form 1099-INT showing your
exempt-interest dividends. Exempt-interest dividends should be shown in box 8 of Form 1099-INT.
Information reporting requirement.
Although exempt-interest dividends are not taxable, you must report them on your tax return if you are required to
file. This is an information
reporting requirement and does not convert tax-exempt interest to taxable interest. Also, this income is generally a “ tax preference item” and
may be subject to the alternative minimum tax. Box 9 of Form 1099-INT should show the tax-exempt interest subject to the alternative
minimum tax. If
you receive exempt-interest dividends, you should get Form 6251, Alternative Minimum Tax—Individuals, for more information.
Nondividend Distributions
A nondividend distribution is a distribution that is not out of earnings and profits and is a return of your investment, or
capital, in the mutual
fund and is shown in box 3 of Form 1099-DIV.
A nondividend distribution reduces your basis in the shares. Basis is explained under Keeping Track of Your Basis, later. Your basis
cannot be reduced below zero. If your basis is zero, you must report the nondividend distribution on your tax return as a
capital gain. Report this
capital gain on Schedule D (Form 1040). Whether it is a long-term or short-term capital gain depends on how long you held
the shares.
Example.
You bought shares in a mutual fund in 2003 for $12 a share. In 2004, you received a nondividend distribution of $5 a share.
You reduced your basis
in each share by $5 to an adjusted basis of $7. In 2005, you received a nondividend distribution of $1 per share and further
reduced your basis in
each share to $6. In 2006, you received a nondividend distribution of $2 per share. Your basis was reduced to $4. In 2007,
the nondividend
distribution from the mutual fund was $5 a share. You reduce your basis in each share to zero and report the excess ($1 per
share) as a long-term
capital gain on Schedule D.
Reinvestment of Distributions
Most mutual funds permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving
cash. You must
report the reinvested amounts the same way as you would report them if you received them in cash. This means that reinvested
ordinary dividends and
capital gain distributions generally must be reported as income. Reinvested exempt-interest dividends generally are not reported
as income. Reinvested
return of capital distributions are reported as explained under Nondividend Distributions, earlier. See Keeping Track of Your Basis,
later, to determine the basis of the additional shares.
You must report mutual fund distributions on Form 1040 or Form 1040A. You cannot report mutual fund
distributions on Form 1040EZ.
You cannot use Form 1040A and must use Form 1040 in either of the following situations.
Form 1040A.
If you file Form 1040A, report your exempt-interest dividends on line 8b. Report your ordinary dividend distributions
on line 9a and your qualified
dividend distributions on line 9b. If the total of the ordinary dividends you received is more than $1,500 or you received
ordinary dividends as a
nominee, first report the ordinary dividends in Part II of Schedule 1, on line 5. Report the total from line 6 of that schedule
on line 9a of Form
1040A. Attach Schedule 1 to your return.
If you reported qualified dividends on line 9b, use the Qualified Dividends and Capital Gain Tax Worksheet in the
Form 1040A instructions.
Do not include capital gain distributions as dividend income on Form 1040A or Schedule 1.
Capital gain distributions.
If you received capital gain distributions, you may have to file Form 1040. But you can report capital gain distributions
on line 10 of Form 1040A,
instead of on Form 1040, if both of the following are true.
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None of the Forms 1099-DIV (or substitute statements) you received have an amount in box 2b, 2c, or 2d.
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You do not have to file Form 1040 for any other reason. (For example, you must not have any other capital gains or any capital
losses.)
If you can use Form 1040A to report your capital gain distributions, use the Qualified Dividends and Capital Gain
Tax Worksheet in the Form 1040A
instructions to figure your tax.
Form 1040.
If you file Form 1040, report your exempt-interest dividends on line 8b. Report your ordinary dividend distributions
on line 9a and your qualified
dividend distributions on line 9b. If the total of the ordinary dividends you received is more than $1,500 or you received
ordinary dividends as a
nominee, first report the ordinary dividends on Schedule B, Part II, line 5. Report the total from line 6 of that schedule
on line 9a of Form 1040.
Attach Schedule B to your return.
If you reported qualified dividends on line 9b, use the Qualified Dividends and Capital Gain Tax Worksheet in the
Form 1040 instructions or the
Schedule D Tax Worksheet in the Schedule D instructions, whichever applies, to figure your tax.
Do not include capital gain distributions as dividend income on Form 1040 or Schedule B.
Capital gain distributions.
If you received capital gain distributions, you report them either directly on Form 1040, line 13, or on Schedule
D, line 13, depending on your
situation. Report them on Schedule D, line 13, unless both of the following are true.
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The only amounts you would have to report on Schedule D are capital gain distributions from box 2a of Form 1099-DIV (or similar
statement).
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You do not have an amount in box 2b, 2c, or 2d, of any Form 1099-DIV (or similar statement).
If both of the above statements are true, report your capital gain distributions directly on line 13 of Form 1040 and check
the box on that
line. Also, use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax.
Undistributed capital gains.
To report undistributed capital gains, you must complete Schedule D and attach it to your return. Report these gains
on Schedule D, line 11, and
attach Copy B of Form 2439 to your return. Report the tax paid by the mutual fund on these gains on Form 1040, line 70, and
check box a on that line.
Table 1.
See Table 1 for more information on where to report your mutual fund distributions on Form 1040 or Form 1040A.
Table 1. Reporting Mutual Fund Distributions on Form 1040 or 1040A
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If you receive . . .
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AND . . .
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Then report the distribution on:
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Form 1040 . . .
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Form 1040A . . .
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ordinary dividends
(Form 1099-DIV, box 1a)
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your total ordinary dividends received are $1,500 or less, and
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you did not receive any ordinary dividends as a nominee
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line 9a
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line 9a
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your total ordinary dividends received are more than $1,500, or
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you received ordinary dividends as a nominee
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line 9a, and
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Schedule B, line 5
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line 9a, and
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Schedule 1, line 5
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qualified dividends
(Form 1099-DIV, box 1b)
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line 9b, and
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Qualified Dividends and Capital Gain Tax Worksheet, line 2, or Schedule D Tax Worksheet, line 2, whichever applies
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capital gain distributions
(Form 1099-DIV, box 2a)
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you do not have to file Form 1040, Schedule D
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you have to file Form 1040, Schedule D (See Schedule D instructions for line 13)
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Schedule D, Line 13
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you must use Form 1040; you cannot use Form 1040A
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section 1250, 1202, or collectibles gain
(Form 1099-DIV, box 2b, 2c, or 2d)
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Schedule D (see the Schedule D instructions)
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you must use Form 1040; you cannot use Form 1040A
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nondividend distributions
(Form 1099-DIV, box 3)
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generally not reported*
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generally not reported*
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exempt-interest dividends (Form 1099-INT, box 8)
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line 8b
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line 8b
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undistributed capital gains
(Form 2439, boxes 1a-1d)
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Schedule D (see the Schedule D instructions)
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you must use Form 1040; you cannot use Form 1040A
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* Report any amount in any excess of your basis in your mutual fund shares on Schedule D. Use
line 8 if you held the shares more than one year. Use line 1 if you held your mutual fund shares 1 year or less.
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Nominees.
If you received a Form 1099-DIV or Form 2439 as a nominee (that is, it includes amounts that actually belong to someone
else, other than your
spouse), you must file a Form 1099-DIV or Form 2439 with the Internal
Revenue Service and give the actual owner a copy. See the instructions for Forms 1099 or Form 2439 for details.
If you received an ordinary dividend distribution as a nominee, report it on line 5 of Schedule B (Form 1040) or Schedule
1 (Form 1040A). Under
your last entry on line 5, enter a subtotal of all ordinary dividends listed. Below this subtotal, enter “ Nominee Distribution” and show the
total ordinary dividends you received as a nominee. Subtract this amount from the subtotal and enter the result on line 6.
If you received a capital gain distribution or were allocated an undistributed capital gain as a nominee, report only
the amount that belongs to
you on line 10 of Form 1040A, line 13 of Form 1040, or Schedule D (Form 1040), whichever is appropriate. Attach a statement
to your return showing the
full amount you received or were allocated and the amount you received or were allocated as a nominee.
Foreign tax deduction or credit.
Some mutual funds invest in foreign securities or other instruments. Your mutual fund may choose to allow you to claim
a deduction or credit for
the taxes it paid to a foreign country or U.S. possession. The fund will notify you if this applies to you. The notice will
include your share of the
foreign taxes paid and the part of the dividend derived from sources in foreign countries or U.S. possessions.
You may be able to claim a credit for income tax paid to a foreign country. However, it may be to your benefit to
treat the tax as an itemized
deduction on Schedule A (Form 1040). For more information on claiming a foreign tax deduction or credit, get Publication 514,
Foreign Tax Credit for
Individuals.
Keeping Track of Your Basis
You should keep track of your basis in mutual fund shares because you need the basis to figure any gain or loss on the shares
when you sell,
exchange, or redeem them.
Original basis.
As explained in the following paragraphs, original basis depends on how you acquired your shares.
Adjusted basis.
As described later under Adjusted Basis, your original basis is adjusted (increased or decreased) by certain events. You must keep
accurate records of all events that affect basis so you can figure the proper amount of gain or loss.
Shares Acquired by Purchase
The original basis of mutual fund shares you bought is usually their cost or purchase price. The purchase price usually includes
any commissions or
load charges paid for the purchase.
Example.
You bought 100 shares of Fund A for $10 a share. You paid a $50 commission to the broker for the purchase. Your cost basis
for each share is $10.50
($1,050 ÷ 100).
When you buy or sell shares in a fund, keep the confirmation statements you receive. The statements show the price you paid
for the shares when you
bought them and the price you received for the shares when you disposed of them. The information from the confirmation statement
when you purchased
the shares will help you figure your basis in the fund.
Commissions and load charges.
The fees and charges you pay to acquire or redeem shares of a mutual fund are not deductible. You can usually add
acquisition fees and charges to
your cost of the shares and thereby increase your basis. A fee paid to redeem the shares is usually a reduction in the redemption
price (sales price).
You cannot add your entire acquisition fee or load charge to the cost of the mutual fund shares acquired if all of
the following conditions apply.
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You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge.
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You dispose of the shares within 90 days of the purchase date.
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You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because
of the
reinvestment right you got when you acquired the original shares.
The amount of the original fee or charge in excess of the reduction in (3) is added to the cost of the original shares.
The rest of the original
fee or charge is added to the cost basis of the new shares (unless all three conditions above also apply to the purchase of
the new shares).
Reinvestment right.
This is the right to acquire mutual fund shares in the same or another mutual fund without paying a fee or load charge,
or by paying a reduced fee
or load charge.
Shares Acquired by Reinvestment
The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions
used to purchase
each full or fractional share. This rule applies even if the distribution is an exempt-interest dividend that you do not report
as income.
When you acquire shares through reinvestment, keep the statements that show each date, amount, and number of full or fractional
shares purchased.
Keep track of any adjustments to basis of the shares as they occur.
Generally, you must know the basis per share to compute gain or loss when you dispose of the shares. This is explained under
Identifying the
Shares Sold, later.
To determine your original basis of mutual fund shares you acquired by gift, you must know:
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The donor's adjusted basis,
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The date of the gift,
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The fair market value (the last quoted public redemption price) of the shares at the time of the gift, and
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Any gift tax paid on the gift of the shares.
Fair market value less than donor's adjusted basis.
If the fair market value (FMV) of the shares at the time of the gift was less than the adjusted basis to the donor
at the time of the gift, your
basis for gain on their disposition is the donor's adjusted basis. Your basis for loss is the FMV of the shares at the time
of the gift. In this
situation, it is possible to sell the shares at neither a gain nor a loss because of the basis you have to use.
Example.
You are given mutual fund shares with an adjusted basis of $10,000 at the time of the gift. The FMV of the shares at the time
of the gift is
$9,000. You later sell the shares for $9,500. The basis for figuring a gain is $10,000, so there is no gain. There also is
no loss, since the basis
for figuring a loss is $9,000. In this situation, you have neither a gain nor a loss.
Fair market value equal to or more than donor's adjusted basis.
If the FMV of the shares at the time of the gift was equal to or more than the donor's adjusted basis at the time
of the gift, your basis is the
donor's adjusted basis at the time of the gift, plus all or part of any gift tax paid on the gift, depending on the date of
the gift.
For information on figuring the amount of gift tax to add to your basis, see Property Received as a Gift in Publication 551, Basis of
Assets.
Shares Acquired by Inheritance
If you inherited shares in a mutual fund, your original basis is generally the fair market value (FMV) (the last quoted public
redemption price) on
the date of the decedent's death, or the alternate valuation date if chosen for estate tax purposes.
Community property states.
In community property states, you and your spouse generally are considered to each own half the
estate (excluding separate property). If one spouse dies and at least half of the community interest is includible in the
decedent's gross estate
(whether or not the estate is required to file a return), the FMV of the community property at the date of death becomes the
basis of both halves of
the property.
For example, if the FMV of the entire community interest in a mutual fund is $100,000, the basis of the surviving
spouse's half of the shares is
$50,000. The basis of the heirs' half of the shares also is $50,000.
In determining the basis of assets acquired from a decedent, property held in joint tenancy is community property
if its status was community
property under state law.
Shares you gave the decedent.
A different basis rule applies to inherited shares that you or your spouse gave the decedent within the 1-year period
ending on the date of the
decedent's death if, on the date of the gift, the shares were appreciated property. In this situation, the basis of the inherited
shares is the
decedent's adjusted basis in them immediately before his or her death, rather than their FMV.
This basis rule also applies if the decedent's estate (or a trust of which the decedent was the grantor) sells the
shares instead of distributing
them to you, and you are entitled to the proceeds.
Appreciated property.
Appreciated property is any property (including mutual fund shares) whose FMV is more than its adjusted basis.
Exceptions.
This basis rule does not apply if the decedent died before 1982 or you gave the shares to the decedent before August
14, 1981.
After you acquire mutual fund shares, you may need to make adjustments to your basis. The adjusted basis of your shares is
your original basis
(defined earlier), increased or reduced as described here.
Addition to basis.
Increase the basis in your shares by the difference between the amount of undistributed capital gain you include in
income and the tax considered
paid by you on that income.
The mutual fund reports the amount of your undistributed capital gain in box 1a of Form 2439, and any tax paid by
the mutual fund in box 2. You
should keep Copy C of all Forms 2439 to show increases in the basis of your shares.
Reduction of basis.
You must reduce your basis in your shares by any nondividend distributions that you receive from the fund.
The mutual fund reports the amount of any nondividend distributions in box 3 of Form 1099-DIV. You should keep the
form to show the decrease in the
basis of your shares.
Basis cannot go below zero.
Your basis cannot be reduced below zero. If your basis is zero, you must report the nondividend distribution on your
tax return as a capital gain.
Report this capital gain on Schedule D (Form 1040). Whether it is a long-term or short-term capital gain depends on how long
you held the shares.
No reduction of basis.
You do not reduce your basis for distributions from the fund that are exempt-interest dividends.
Table 2. Mutual Fund Record
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Mutual Fund
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Acquired
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Adjustment to Basis Per Share
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Adjusted
2 Basis Per Share
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Sold or redeemed
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Date
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Number of Shares
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Cost Per Share
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Date
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Number of Shares
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| 1 Include share received from reinvestment of distributions.
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| 2 Cost plus or minus adjustments.
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Table 2. This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Enter the cost per share when
you acquire new shares and any adjustments to their basis when the adjustment occurs. This worksheet will help you figure
the adjusted basis when you
sell or redeem shares.
Sales, Exchanges, and Redemptions
When you sell or exchange your mutual fund shares, or if they are redeemed (a redemption), you will generally have a taxable
gain or a deductible
loss. This also applies to shares of a tax-exempt mutual fund. Sales, exchanges, and redemptions are all treated as sales
of capital assets. The
amount of the gain or loss is the difference between your adjusted basis (defined earlier) in the shares and the amount you
realize from the sale,
exchange, or redemption. This is explained further under Gains and Losses, later.
Sale.
In general, a sale is a transfer of shares for money only.
Exchange.
An exchange is a transfer of shares in return for other shares.
Redemption.
A redemption occurs when a fund reacquires its shares from you in exchange for money or other property.
Recordkeeping. When there is a sale, exchange, or redemption of your shares in a fund, keep the
confirmation statement you receive. The statement shows the price you received for the shares and other information you need
to report gain or loss on
your return.
Exchange of shares in one mutual fund for shares in another mutual fund.
Any exchange of shares in one fund for shares in another fund is a taxable exchange. This is true even if you exchange
shares in one fund for
shares in another fund within the same family of funds. Report any gain or loss on the shares you gave up as a capital gain
or loss in the year in
which the exchange occurs. Usually, you can add any service charge or fee paid in connection with an exchange to the cost
of the shares acquired. For
an exception, see Commissions and load charges under Shares Acquired by Purchase, earlier.
Information returns.
Mutual funds and brokers must report proceeds from sales, exchanges, or redemptions to the Internal Revenue Service.
They must provide or send each customer a written statement with that information by January 31 of the year following the
calendar year the
transaction occurred. Form 1099-B, or a substitute, may be used for this purpose. If it is mailed, you should allow adequate
time to receive it before
contacting the payer. If you still do not get the form by February 15, call the IRS for help.
Report your sales shown on Form(s) 1099-B (or substitute) on Schedule D (Form 1040) along with your other gains and
losses. If the total of the
sales price amounts reported on Form(s) 1099-B in box 2 is more than the total you report on lines 3 and 10 of Schedule D,
attach a statement to your
return explaining the difference.
Taxpayer identification number.
You must give the broker your correct taxpayer identification number (TIN). Generally, an individual will use his
or her social security number as
the TIN.
If you do not provide your TIN, your broker is required to withhold tax on the gross proceeds of a transaction. For
2008, the withholding rate is
28%. In addition, you may be penalized.
Identifying the Shares Sold
To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis
of those shares. If
your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficult.
However, shares are
generally acquired at various times, in various quantities, and at various prices. Therefore, figuring your basis can be more
difficult. You can
choose to use either a cost basis or an average basis to figure your gain or loss.
You can figure your gain or loss using a cost basis only if you did not previously use an average basis for a sale, exchange,
or redemption of
other shares in the same mutual fund.
To figure cost basis, you can choose one of the following methods.
Specific share identification.
If you adequately identify the shares you sold, you can use the adjusted basis of those particular shares to figure
your gain or loss.
You will adequately identify your mutual fund shares, even if you bought the shares in different lots at various prices
and times, if you:
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Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer,
and
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Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular
shares sold
or transferred.
You continue to have the burden of proving your basis in the specified shares at the time of sale or transfer.
First-in first-out (FIFO).
If your shares were acquired at different times or at different prices and you cannot identify which shares you sold,
use the basis of the shares
you acquired first as the basis of the shares sold. In other words, the oldest shares you own are considered sold first. You
should keep a separate
record of each purchase and any dispositions of the shares until all shares purchased at the same time have been disposed
of completely.
Table 3 (on the next page) illustrates the use of the FIFO method to figure the cost basis of shares sold, compared
with the use of the
single-category method to figure average basis (discussed next).
You can figure your gain or loss using an average basis only if you acquired the shares at various times and prices, and you
left the shares on
deposit in an account handled by a custodian or agent who acquires or redeems those shares.
To figure average basis, you can use one of the following methods.
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Single-category method.
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Double-category method.
Once you elect to use an average basis, you must continue to use it for all accounts in the same fund. (You must also continue
to use the same
method.) However, you may use the cost basis (or a different method of figuring the average basis) for shares in other funds,
even those within the
same family of funds.
Example.
You own two accounts that hold shares of the income fund issued by Company A. You also own 100 shares of the growth fund issued
by Company A. If
you elect to use average basis for the first account of the income fund, you must use average basis for the second account.
However, you may use cost
basis for the growth fund.
You may be able to find the average basis of your shares from information provided by the fund.
Single-category method.
Under the single-category method, you find the average basis of all shares owned at the time of each disposition,
regardless of how long you owned
them. Include shares acquired with reinvested dividends or capital gain distributions.
Table 3 illustrates the use of the single-category method to figure the average basis of shares sold, compared with
the use of the FIFO method to
figure cost basis (discussed earlier).
Even though you include all unsold shares of a fund in a single category to compute average basis, you may have both
short-term and long-term gains
or losses when you sell these shares. To determine your holding period, the shares disposed of are considered to be those
acquired first.
Example.
You bought 400 shares in the LJO Mutual Fund: 200 shares on May 15, 2006, and 200 shares on May 14, 2007. On November 9, 2007,
you sold 300 shares.
The basis of all 300 shares sold is the same, but you held 200 shares for more than 1 year, so your gain or loss on those
shares is long term. You
held 100 shares for 1 year or less, so your gain or loss on those shares is short term.
To figure the basis of shares you sell, use the steps in the following worksheet.
Example 1.
You bought 300 shares in the LJP Mutual Fund: 100 shares in 2004 for $1,000 ($10 per share); 100 shares in 2005 for $1,200
($12 per share); and 100
shares in 2006 for $2,600 ($26 per share). Thus, the total cost of your shares was $4,800 ($1,000 + $1,200 + $2,600). On May
17, 2007, you sold 150
shares. The basis of the shares you sold is $2,400 ($16 per share), figured as follows.
Remaining shares.
The average basis of the shares you still hold after a sale of some of your shares is the same as the average basis
of the shares sold. The next
time you make a sale, your average basis will still be the same, unless you have acquired additional shares (or have made
a subsequent adjustment to
basis).
Example 2.
The facts are the same as in Example 1, except that you sold an additional 50 shares on December 17, 2007. You do not need to recompute
the average basis of the 150 shares you owned at that time because you acquired or sold no shares, and had no other adjustments
to basis, since the
last sale. Your basis is the $16 per share figured earlier.
Example 3.
The facts are the same as in Example 1, except that you bought an additional 150 shares at $14 a share on September 17, 2007, and then
sold 50 shares on December 18, 2007. The total adjusted basis of all the shares you owned just before the sale is $4,500,
figured as follows.
The basis of the shares sold is $750 ($15 a share), figured as follows.
Double-category method.
In the double-category method, all shares in an account at the time of each disposition are divided into two categories:
short term and long term.
Shares held 1 year or less are short term. Shares held longer than 1 year are long term.
The basis of each share in a category is the average basis for that category. This is the total remaining basis of
all shares in that category at
the time of disposition divided by the total shares in the category at that time. To use this method, you specify, to the
custodian or agent handling
your account, from which category the shares are to be sold or transferred. The custodian or agent must confirm in writing
your specification. If you
do not specify or receive confirmation, you must first charge the shares sold against the long-term category and then charge
any remaining shares sold
against the short-term category.
Changing categories.
After you have held a mutual fund share for more than 1 year, you must transfer that share from the short-term category
to the long-term category.
The basis of a transferred share is its actual cost or other basis to you unless some of the shares in the short-term category
have been disposed of.
In that case, the basis of a transferred share is the average basis of the undisposed shares at the time of the most recent
disposition from this
category.
Making the choice.
You choose to use the average basis of mutual fund shares by clearly showing on your income tax return, for each year
the choice applies, that you
used an average basis in reporting gain or loss from the sale or transfer of the shares. You must specify whether you used
the single-category method
or the double-category method in determining average basis. This choice is effective until you get permission from the IRS
to revoke it.
Shares received as gift.
If your account includes shares that you received by gift, and the fair market value of the shares at the time of
the gift was not more than the
donor's basis, special rules apply. You cannot choose to use the average basis for the account unless you submit a statement
with your initial choice.
It must state that the basis used in figuring the average basis of the gift shares will be the FMV at the time of the gift.
This statement applies to
gift shares received before and after making the choice, as long as the choice to use the average basis is in effect.
Table 3. Example of How To Figure Basis of Shares Sold
|
This is an example showing two different ways to figure basis. It compares the cost basis using the
FIFO method with the average basis using the single-category method.
|
|
Date
|
Action
|
Share Price
|
No. of Shares
|
Total Shares Owned
|
|
2/6/06
|
Invest $4,000
|
$25
|
160
|
160
|
|
8/7/06
|
Invest $4,800
|
$20
|
240
|
400
|
|
12/18/06
|
Reinvest $300 dividend
|
$30
|
10
|
410
|
|
10/1/07
|
Sell 210 shares for $6,720
|
$32
|
210
|
200
|
| |
COST BASIS
(FIFO)
|
To figure the basis of the 210 shares sold on 10/1/07, use the share price of the first
210 shares you bought, namely the 160 shares you purchased on 2/6/06 and 50 of those purchased on 8/7/06.
|
| |
| |
|
$4,000 (cost of 160 shares on 2/6/06)
|
| |
+
|
$1,000 (cost of 50 shares on 8/7/06)
|
| |
Basis =
|
$5,000
|
| |
| AVERAGE BASIS (single-category)
|
To figure the basis of the 210 shares sold on 10/1/07, use the average basis of all 410 shares owned on
10/1/07.
|
| |
|
$9,100 (cost of 410 shares)
|
| |
|
÷410 (number of shares)
|
| |
|
$22.20 (average basis per share)
|
| |
| |
|
$22.20
|
|
| |
|
×210 |
| |
Basis =
|
$4,662
|
You figure gain or loss on the disposition of your shares by comparing the amount you realize with the adjusted basis of your
shares. If the amount
you realize is more than the adjusted basis of the shares, you have a gain. If the amount you realize is less than the adjusted
basis of the shares,
you have a loss.
Amount you realize.
The amount you realize from a disposition of your shares is the money and value of any property you receive for the
shares disposed of, minus your
expenses of sale (such as redemption fees, sales commissions, sales charges, or exit fees).
Adjusted basis.
Adjusted basis is explained under Keeping Track of Your Basis, earlier. Also see the explanations of cost basis and average basis under
Identifying the Shares Sold, earlier.
Wash sales.
If you sell mutual fund shares at a loss and within 30 days before or after the sale you buy, acquire in a taxable
exchange, or acquire a contract
or option to buy substantially identical shares, you have a wash sale. You cannot deduct losses from wash sales.
Substantially identical.
In determining whether the shares are substantially identical, you must consider all the facts and circumstances.
Ordinarily, shares issued by one
mutual fund are not considered to be substantially identical to shares issued by another mutual fund.
For more information on wash sales, get Publication 550.
Reporting information from Form 1099-B.
Mutual funds and brokers report dispositions of mutual fund shares on Form 1099-B, or a substitute form containing
substantially the same language.
The form shows the amount of the sales price and indicates whether the amount reported is the gross amount or the net amount
(gross amount minus
commissions).
If your Form 1099-B or similar statement from the payer shows the gross sales price, do not subtract the expenses
of sale from it when reporting
your sales price in column (d) on Schedule D. Instead, report the gross amount in column (d) and increase your cost or other
basis, column (e), by any
expense of the sale. If your Form 1099-B shows that the gross sales price less commissions was reported to IRS, enter the
net amount in column (d) of
Schedule D and do not increase your basis in column (e) by the sales commission.
Example 1.
You sold 100 shares of Fund HIJ for $2,500. You paid a $75 commission to the broker for handling the sale. Your Form 1099-B
shows that the net
sales proceeds, $2,425 ($2,500 - $75), were reported to the IRS. Report $2,425 in column (d) of Schedule D.
Example 2.
You sold 200 shares of Fund KLM for $10,000. You paid a $100 commission at the time of the sale. You bought the shares for
$5,000. The broker
reported the gross proceeds to IRS on Form 1099-B, so you enter $10,000 in column (d) of Schedule D and increase your basis
in column (e) to $5,100.
Note.
Whether you use Schedule D's line 1 (for a short-term gain or loss) or line 8 (for a long-term gain or loss) depends on how
long you held the
shares, discussed next.
When you dispose of your mutual fund shares, you must determine your holding period. Your holding period determines whether
the gain or loss is a
short-term capital gain or loss or a long-term capital gain or loss.
Short-term gain or loss.
If you hold the shares for 1 year or less, your gain or loss will be a short-term gain or loss.
Long-term gain or loss.
If you hold the shares for more than 1 year, your gain or loss will be a long-term gain or loss.
Determining period held.
Determine your holding period by using the trade dates of your purchases and your sales. The trade date is the date
on which you contract to buy or
sell shares. Most mutual funds will show the trade dates on confirmation statements showing your purchases and sales.
Do not confuse the trade date with the settlement date, which is the date by which the mutual fund shares must be delivered
and payment must be
made.
To find out how long you have held your shares, begin counting on the day after the trade date on which you bought the shares.
(Do not count the
trade date itself.) The trade date on which you dispose of the shares is counted as part of your holding period.
Example.
If you bought shares on January 4, 2006 (trade date), and sold them on January 4, 2007 (trade date), your holding period would
not be more than 1
year. If you sold them on January 5, 2007, your holding period would be more than 1 year (12 months plus 1 day).
Mutual fund shares received as a gift.
If you receive a gift of mutual fund shares and your basis is determined by the donor's basis, your holding period
is considered to have started on
the same day that the donor's holding period started.
Inherited mutual fund shares.
If you inherit mutual fund shares, you are considered to have held the shares for more than 1 year, regardless of
how long you actually held them.
Report the sale of inherited mutual fund shares on line 8 of Schedule D and enter “ Inherited” in column (b) instead of the date you acquired the
shares.
Reinvested distributions.
If your dividends and capital gain distributions are reinvested in new shares, the holding period of each new share
begins the day after that share
was purchased. Therefore, if you sell both the new shares and the original shares, you might have both short-term and long-term
gains and losses.
Certain short-term losses.
Special rules may apply if you have a short-term loss on the sale of shares on which you received an exempt-interest
dividend or a capital gain
distribution.
Exempt-interest dividends before short-term loss.
If you received exempt-interest dividends on mutual fund shares that you held for 6 months or less and sold at a loss,
you may claim only the part
of the loss that is more than the exempt-interest dividends. On Schedule D, column (d), increase the sales price by the amount
of exempt-interest
dividends. Report the loss as a short-term capital loss.
Example.
On January 5, 2007, you bought a mutual fund share for $40. On February 2, 2007, the mutual fund paid a $5 dividend from tax-exempt
interest, which
is not taxable to you. On February 9, 2007, you sold the share for $34. If it were not for the tax-exempt dividend, your loss
would be $6 ($40 -
$34). However, you must increase the sales price from $34 to $39 (to account for the $5 portion of the loss that is not deductible).
You can deduct
only $1 as a short-term capital loss.
Capital gain distribution before short-term loss.
Generally, if you received capital gain distributions (or had to report undistributed capital gains) on mutual fund
shares that you held for 6
months or less and sold at a loss, report only the part of the loss that is more than the capital gain distribution (or undistributed
capital gain) as
a short-term capital loss. The rest of the loss is reported as a long-term capital loss.
Example.
On April 10, 2007, you bought a mutual fund share for $20. On June 26, 2007, the mutual fund paid a capital gain distribution
of $2 a share, which
is taxed as a long-term capital gain. On July 12, 2007, you sold the share for $17.50. If it were not for the capital gain
distribution, your loss
would be a short-term loss of $2.50 ($20 - $17.50). However, the part of the loss that is not more than the capital gain distribution
($2) must
be reported as a long-term capital loss. The remaining $0.50 of the loss can be reported as a short-term capital loss.
Loss on share that paid qualified dividends.
Any loss on the sale or exchange of a mutual fund share must be treated as a long-term capital loss to the extent
you received, from that share,
qualified dividends (defined earlier) that are extraordinary dividends. This is true regardless of how long you actually held
the share. Generally, an
extraordinary dividend is a dividend that equals or exceeds 10% (5% in the case of preferred stock) of your adjusted basis
in the mutual fund share.
How To Figure Net Gain or Loss
Separate your short-term gains and losses from your long-term gains and losses on all the mutual fund shares and other capital
assets you disposed
of during the year. Then determine your net short-term gain or loss and your net long-term gain or loss.
Net short-term capital gain or loss.
Net short-term capital gain or loss is determined by adding the gains and losses shown on Schedule D (Form 1040),
Part I, column (f), lines 1
through 6. Line 7 is the net short-term capital gain or loss.
Net long-term capital gain or loss.
Net long-term capital gain or loss is determined by adding the gains and losses shown on Schedule D (Form 1040), Part
II, column (f), lines 8
through 14. Line 15 is the net long-term capital gain or loss.
Your net long-term capital gain or loss includes any undistributed capital gains you reported on line 11 of Schedule
D and any capital gain
distributions you reported on line 13 of Schedule D.
Total net gain or loss.
The total net gain or loss is determined by combining the net short-term capital gain or loss on line 7 with the net
long-term capital gain or loss
on line 15. Enter the result on line 16 of Schedule D (Form 1040), Part III. If line 16 shows a gain, enter the amount on
line 13 of Form 1040. If
line 16 shows a loss, see Limit on Capital Loss Deduction, later.
If you are reporting capital gain distributions on Form 1040A, use the Qualified Dividends and Capital Gain Tax Worksheet
in the Form 1040A
instructions to figure your tax. See How To Report, earlier, to see whether you can report your capital gain distributions on Form 1040A.
If you are reporting capital gain distributions on Form 1040, but are not required to file Schedule D, use the Qualified Dividends
and Capital Gain
Tax Worksheet in the Form 1040 instructions to figure your tax. See How To Report, earlier, to see whether you must file Schedule D.
If you are required to file Schedule D, use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions
to figure your tax
if both of the following are true.
-
You have a net capital gain or qualified dividends (or both). You have a net capital gain if both lines 15 and 16 of Schedule
D are gains.
Qualified dividends are explained earlier under Tax Treatment of Distributions.
-
You do not have to use the Schedule D Tax Worksheet.
If you have any collectibles gain, exclusion from eligible gain on qualified small business stock, or unrecaptured section
1250 gain, you will have
to use the Schedule D Tax Worksheet in the Schedule D instructions to figure your tax.
The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower
rates are called the
maximum capital gain rates.
The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than any net short-term capital
loss.
The maximum capital gain rate can be 5%, 15%, 25%, or 28%. See Table 4.
If you figure your tax using the maximum capital gain rate and the regular tax computation results in a lower tax, the regular
tax computation
applies.
Table 4. What Is Your Maximum Capital Gain Rate?
| IF your net capital gain is from ... |
THEN your maximum capital gain rate is ... |
|
collectibles gain
|
28% |
|
eligible gain on qualified small business stock minus the section 1202 exclusion
|
28% |
|
unrecaptured section 1250 gain
|
25% |
|
other gain
*, and the regular tax rate that would apply is 25% or higher
|
15% |
|
Other gain
*, and the regular tax rate that would apply is lower than 25%
|
5% |
| *“Other gain” means any gain that is not collectibles gain, eligible gain on qualified small business stock, or unrecaptured section
1250 gain.
|
Example.
You have a capital gain distribution that is a section 1202 gain, so the maximum capital gain rate on the distribution would
be 28%. Because you
are single and your taxable income is $25,000, none of your taxable income will be taxed above the 15% rate. The 28% rate
does not apply.
Limit on Capital Loss Deduction
If Schedule D (Form 1040), Part III, line 16, shows a loss, your allowable capital loss deduction is the smaller of:
-
$3,000 ($1,500 if you are married and filing a separate return), or
-
Your total net loss shown on line 16 of Schedule D.
Enter your allowable loss on line 13 of Form 1040.
Example.
Bob and Gloria sold all of their shares in a mutual fund. The sale resulted in a capital loss of $7,000. They had no other
capital transactions.
Their taxable income was $26,000. On their joint 2007 return, they can deduct $3,000. The unused part of the loss, $4,000
($7,000 - $3,000), can
be carried over to 2008.
If Bob and Gloria's capital loss had been $2,000, their capital loss deduction would have been $2,000. They would have no
carryover.
Capital loss carryover.
If you have a total net loss on line 16 of Schedule D that is more than the yearly limit on capital loss deductions,
you can carry over the unused
part to next year and treat it as if you had incurred it in that next year. To determine your capital loss carryover, subtract
from your total net
loss the lesser of:
-
Your allowable capital loss deduction for the year, or
-
Your taxable income increased by your allowable capital loss deduction for the year and by your deduction for personal
exemptions.
If your deductions exceed your gross income, you start the computation in (2) above with a negative number.
Use the Capital Loss Carryover Worksheet in Publication 550 to figure your capital loss carryover.
When carried over, the loss will keep its original character as long term or short term. Therefore, a long-term capital
loss carried over from a
previous year will offset long-term gains of the current year before it offsets short-term gains of the current year. For
more information on figuring
capital loss carryovers, get Publication 550.
Separate returns.
Capital loss carryovers from separate returns are combined if you now file a joint return. However, if you once filed
jointly and are now filing
separately, a capital loss carryover from the joint return can be deducted only on the separate return of the spouse who actually
had the loss.
You can generally deduct the expenses of producing taxable investment income. These include expenses for investment counseling
and advice, legal
and accounting fees, and investment newsletters. These expenses are deductible as miscellaneous itemized deductions to the
extent that they exceed 2%
of your adjusted gross income. See chapter 3 in Publication 550 for more information.
Interest paid on money to buy or carry investment property is also deductible, but the deduction may be limited. See Limit on Investment
Interest Expense, later.
Publicly offered mutual funds.
Most mutual funds are publicly offered. Expenses of publicly offered mutual funds are not treated as miscellaneous
itemized deductions. This is
because these mutual funds report only the net amount of investment income after your share of the investment expenses has
been deducted.
Nonpublicly offered mutual funds.
If you own shares in a nonpublicly offered mutual fund during the year, you can deduct your share of the investment
expenses on your Schedule A
(Form 1040). Claim them as a miscellaneous itemized deduction to the extent your miscellaneous itemized deductions exceed
2% of your adjusted gross
income. Your share of the expenses will be shown in box 5 of Form 1099-DIV. A nonpublicly offered mutual fund is one that:
-
Is not continuously offered pursuant to a public offering,
-
Is not regularly traded on an established securities market, and
-
Is held by fewer than 500 persons at any time during the tax year.
Contact your mutual fund if you are not sure whether it is nonpublicly offered.
Expenses allocable to exempt-interest dividends.
You cannot deduct expenses that are for the collection or production of exempt-interest dividends. Expenses must be
allocated if they were for both
taxable and tax-exempt income. One accepted method for allocating expenses is to divide them in the same proportion that each
type of income from the
mutual fund is to your total income from the fund. To find the part of the expenses that relates to the tax-exempt income,
you must first divide your
tax-exempt income by your total income. Then multiply your expenses by the result. You cannot deduct this part.
Example.
William received $600 in dividends from his mutual fund: exempt-interest dividends of $480 and taxable dividends of $120.
In earning this income,
he had a $50 expense for a newsletter on mutual funds. William divides the exempt-interest dividends by the total dividends
to figure the part of the
expense that is not deductible. Therefore, 80% ($480 ÷ $600) of William's expense is for exempt-interest income. He cannot
deduct $40 (80% of
$50) of the expense. William may claim the balance of the expense, $10, as a miscellaneous itemized deduction subject to the
2%-of-adjusted-gross-
income limit. That is the part of the expense allocable to the taxable dividends.
Limit on Investment Interest Expense
The amount you can deduct as investment interest expense may be limited in two different ways. First, you may not deduct the
interest on money you
borrow to buy or carry shares in a mutual fund that distributes only exempt-interest dividends. If the fund also distributes
taxable dividends, you
must allocate the interest between the taxable and nontaxable income. Allocate the interest as explained under Expenses allocable to
exempt-interest dividends, earlier.
Second, your deduction for investment interest expense is limited to the amount of your net investment income.
Net investment income.
This is figured by subtracting your investment expenses other than interest from your investment income. For this
purpose, do not include any
income or expenses taken into account to figure gain or loss from passive activities. For more information on passive activity
losses, get Publication
925, Passive Activity and At-Risk Rules.
Investment income.
Investment income generally includes gross income derived from property held for investment (such as interest, dividends,
annuities, and
royalties). It generally does not include net capital gain derived from disposing of investment property. Nor does it include
qualified dividends or
capital gain distributions from mutual fund shares. However, you can choose to include part or all of these amounts in investment
income. For
information on this choice, see chapter 3 of Publication 550.
Investment expenses.
Investment expenses include all income-producing expenses relating to the investment property, other than interest
expenses, that are allowable
deductions after subtracting 2% of adjusted gross income. In figuring the amount over the 2% limit, miscellaneous expenses
that are not investment
expenses are disallowed before any investment expenses are disallowed.
For information on the 2% limit, get Publication 529, Miscellaneous Deductions.
Example.
Jane, a single taxpayer, has investment income for the year of $12,000. Jane's investment expenses (other than interest expense)
directly connected
with the production of income were $980 after subtracting the 2% limit on miscellaneous itemized deductions. Jane incurred
$12,500 of investment
interest expense during the year. She had no passive activity losses. Jane figures net investment income and the limit on
her investment interest
expense deduction as follows:
For the year, Jane's investment interest expense deduction is limited to $11,020 (her net investment income). The disallowed
interest expense of
$1,480 ($12,500 - $11,020) can be carried forward to the following year as explained next under Carryover.
Carryover.
You can carry forward to the next tax year the investment interest that you cannot deduct because of the limit. You
can deduct the interest carried
forward to the extent that your net investment income exceeds your investment interest in that later year.
Form 4952.
Use Form 4952 to figure your investment interest expense deduction. For more information about investment interest
expense, get Publication 550.
Robert and Janice Martin have the following four sources of investment income to report on their 2007 tax return. Page 1 of
their Schedule D (Form
1040) is shown later. Page 2 is not illustrated.
-
$1,204 gain from the sale of 200 shares of Mutual Fund S on October 10, 2007. They received Form 1099-B, and they report the
sale on
Schedule D (Form 1040).
Robert and Janice purchased these shares in 1993 at $10 each. They received some nondividend distributions in 1995, 1996,
and 2004 that reduced
their basis in the shares. In 2005 and 2006, the Martins reported undistributed capital gains that increased their basis in
their shares. They
received no distributions in 2007 before the sale.
-
$265 of ordinary dividends, including $250 of qualified dividends, and $61 of capital gain distributions from Mutual Fund
R. The Martins
received Form 1099-DIV showing these amounts. They report the ordinary dividends on line 9a of Form 1040. They report the
qualified dividends on line
9b of Form 1040. They do not report the ordinary dividends on Schedule B (Form 1040) because their total ordinary dividends
were not over $1,500. They
report the capital gain distributions on Schedule D (Form 1040) because they have other capital transactions.
Robert and Janice invested $3,800 in this fund in June 2007 and received 153.16 shares that cost $24.81 per share. They requested
that all of their
distributions be reinvested in more shares of the fund. On December 28, 2007, they acquired an additional 13.03 shares at
$25.01 per share from their
reinvested dividends.
-
$101 of exempt-interest dividends from Mutual Fund X. They chose not to reinvest these exempt-interest dividends and instead
received a cash
payment. They received a Form 1099-INT from the fund showing this nontaxable amount, which they report on line 8b of Form
1040.
The Martins invested $2,600 in this fund in April 2005 and received 87.54 shares at $29.70 per share. They received exempt-interest
dividends of
$92 in 2005 and $107 in 2006.
-
$237 in ordinary dividends, including $220 of qualified dividends, from 100 shares of common stock in Green Publishing Company.
These were
received as a cash payment and not reinvested. They received Form 1099-DIV, and they report the ordinary dividends on line
9a of Form 1040 and the
qualified dividends on line 9b.
Robert and Janice bought this stock in 1993 for $10.29 per share.
Mutual Fund Record.
Robert and Janice keep track of all their basis adjustments on their Mutual Fund Record, shown later. They show the
nondividend distributions and
the undistributed capital gains from Mutual Fund S and the reinvested dividends from Mutual Fund R. They do not show the exempt-interest
dividends
from Mutual Fund X because those dividends do not change their basis in the shares.
The Martins keep this record with their mutual fund documents, and they use it to report their 2007 sale of Mutual
Fund S.
Preparing Schedule D.
The Martins use their Form 1099-B and their Mutual Fund Record to figure the gain from the sale of Mutual Fund S to
report on Schedule D.
Robert and Janice enter the $61 capital gain distribution from Mutual Fund R (from box 2a of Form 1099-DIV) on line
13, column (f).
They report the sale of their shares in Mutual Fund S on line 8 because they owned the shares for more than 1 year.
They use the information from
their Mutual Fund Record to complete columns (a), (b), and (e). After adjustment for their nondividend distributions and their
undistributed capital
gains, their basis is $1,996 ($9.98 per share). They use their Form 1099-B to complete columns (c) and (d). Their sales price
in column (d) (the gross
proceeds shown in box 2 of Form 1099-B) is $3,200 ($16 per share). They enter their gain of $1,204 in column (f).
Robert and Janice add the amounts in column (f) of lines 8 and 13 and enter their net long-term capital gain of $1,265
on line 15. They also enter
that amount on line 16. They check the “ Yes” box for line 17, leave lines 18 and 19 blank, and check the “ Yes” box for line 20. They follow
the line 20 instructions and they compute their tax on Form 1040 using the Qualified Dividends and Capital Gain Tax Worksheet
in the Form 1040
instructions. They enter their taxable income of $36,505 (from Form 1040, line 43) on line 1 of the worksheet and their qualified
dividends of $470
($250 from Mutual Fund R and $220 from Green Publishing Co.) (from Form 1040, line 9b) on line 2.
Qualified Dividends and Capital Gain Tax Worksheet—Line 44
| 1 Include share received from reinvestment of distributions.
|
| 2 Cost plus or minus adjustments.
|
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from
the IRS in several
ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
Contacting your Taxpayer Advocate.
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers
who are experiencing economic
harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that
an IRS system or
procedure is not working as it should.
You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059
to see if you are eligible for
assistance. You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your
local telephone directory
and in Publication 1546, Taxpayer Advocate Service - Your Voice at the IRS. You can file Form 911, Request for Taxpayer Advocate
Service
Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. For more
information, go to
www.irs.gov/advocate.
Taxpayer Advocacy Panel (TAP).
The TAP listens to taxpayers, identifies taxpayer issues, and makes suggestions for improving IRS services and customer
satisfaction. If you have
suggestions for improvements, contact the TAP, toll free at 1-888-912-1227 or go to
www.improveirs.org.
Low Income Taxpayer Clinics (LITCs).
LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies
with the IRS for free or for
a nominal charge. The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who
speak English as a second
language. Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. It is available
at
www.irs.gov or at your local IRS office.
Free tax services.
To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. It contains a list of
free tax publications and
describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.
Accessible versions of IRS published products are available on request in a variety of alternative formats for people
with disabilities.
Internet. You can access the IRS website at
www.irs.gov 24 hours a day, 7 days a week to:
-
E-file your return. Find out about commercial tax preparation and e-file services available free to eligible
taxpayers.
-
Check the status of your 2007 refund. Click on Where's My Refund. Wait at least 6 weeks from the date you filed your return (3
weeks if you filed electronically). Have your 2007 tax return available because you will need to know your social security
number, your filing status,
and the exact whole dollar amount of your refund.
-
Download forms, instructions, and publications.
-
Order IRS products online.
-
Research your tax questions online.
-
Search publications online by topic or keyword.
-
View Internal Revenue Bulletins (IRBs) published in the last few years.
-
Figure your withholding allowances using the withholding calculator online at
www.irs.gov/individuals.
-
Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant.
-
Sign up to receive local and national tax news by email.
-
Get information on starting and operating a small business.
Phone. Many services are available by phone.
-
Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications,
and prior-year forms and instructions. You should receive your order within 10 days.
-
Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
-
Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An
employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local
Taxpayer Assistance Center
for an appointment. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
-
TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and
publications.
-
TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.
-
Refund information. To check the status of your 2007 refund, call 1-800-829-4477 and press 1 for automated refund information or
call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically).
Have your 2007 tax
return available because you will need to know your social security number, your filing status, and the exact whole dollar
amount of your refund.
Evaluating the quality of our telephone services. To ensure IRS representatives give accurate, courteous, and professional answers, we
use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to listen
in on or record random
telephone calls. Another is to ask some callers to complete a short survey at the end of the call.
Walk-in. Many products and services are available on a walk-in basis.
-
Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and
publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions,
and office supply stores
have a collection of products available to print from a CD or photocopy from reproducible proofs. Also, some IRS offices and
libraries have the
Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
-
Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An
employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need
to resolve a tax problem,
have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone
in person, visit your
local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No
appointment is necessary,
but if you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue.
A representative will
call you back within 2 business days to schedule an in-person appointment at your convenience. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
Mail. You can send your order for forms, instructions, and publications to the address below. You should receive a response within
10
days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
CD/DVD for tax products. You can order Publication 1796, IRS Tax Products CD/DVD, and obtain:
-
Current-year forms, instructions, and publications.
-
Prior-year forms, instructions, and publications.
-
Bonus: Historical Tax Products DVD - Ships with the final release.
-
Tax Map: an electronic research tool and finding aid.
-
Tax law frequently asked questions.
-
Tax Topics from the IRS telephone response system.
-
Fill-in, print, and save features for most tax forms.
-
Internal Revenue Bulletins.
-
Toll-free and email technical support.
-
The CD which is released twice during the year.
- The first release will ship the beginning of January 2008.
- The final release will ship the beginning of March 2008.
Purchase the CD/DVD from National Technical Information Service (NTIS) at
www.irs.gov/cdorders for $35 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD/DVD for $35 (plus a $5
handling fee). Price is subject to change.
CD for small businesses. Publication 3207, The Small Business Resource Guide CD for 2007, is a must for every small business owner or
any taxpayer about to start a business. This year's CD includes:
-
Helpful information, such as how to prepare a business plan, find financing for your business, and much more.
-
All the business tax forms, instructions, and publications needed to successfully manage a business.
-
Tax law changes for 2007.
-
Tax Map: an electronic research tool and finding aid.
-
Web links to various government agencies, business associations, and IRS organizations.
-
“Rate the Product” survey—your opportunity to suggest changes for future editions.
-
A site map of the CD to help you navigate the pages of the CD with ease.
-
An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan,
and filing taxes.
An updated version of this CD is available each year in early April. You can get a free copy by calling 1-800-829-3676 or
by visiting
www.irs.gov/smallbiz.
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