Enter the ordinary dividends from Form 1099DIV (PDF), box 1, on line 9 of Form 1040 (PDF), U.S. Individual Income Tax Return. Enter the total capital gain distributions from box 2a on line 13, column (f) of Form 1040, Schedule D (PDF). Enter the 28% rate gain portion of your capital gain distributions from box 2b on line 13, column (g) of Schedule D. If you have an amount in box 2c or box 2d, refer to Instructions for Form 1040, Schedule D. Nontaxable distributions, box 3, that are return of capital distributions, reduce your cost basis and are not taxable until your basis is reduced to zero. If no amount is shown in boxes 2b through 2d, and your only capital gains and losses are capital gain distributions, refer to Instructions for Form 1040 for line 13.

References:

• Form 1040, Schedule D (PDF), Capital Gains and Losses
• Instructions for Form 1040
• Instructions for Form 1040, Schedule D

If you itemized deductions on your Federal tax return for 2001, and received a refund of state or local taxes in 2001, you may have to include all or part of the refund as income on your 2002 tax return.

If you did not itemize your deductions on your Federal tax return for the same year as the state or local tax refund applies to, do not report any of the refund as income. Refer to Tax Topic 405, Refund of State and Local Taxes, and Publication 525 (PDF), Taxable and Nontaxable Income, for further information.

References:

• Publication 525 (PDF), Taxable and Nontaxable Income
• Tax Topic 405, Refund of State and Local Taxes
• Instructions for Form 1040

You may have received either a Form 1099A (PDF), Acquisition or Abandonment of Secured Property, or Form 1099C (PDF), Cancellation of Debt, or both. You must compute whether you have cancelled debt income. You have cancelled debt income if the debt cancelled, is debt for which you are personally liable and it exceeds the fair market value of the property at the time of the transfer. Cancelled debt income is taxable as other income on line 21 (other income) of Form 1040 (PDF). Refer to Publication 544 (PDF), Sales and Other Disposition of Assets. Complete Table 1-2, Worksheet for Foreclosure & Repossessions to determine if there is income from cancellation of debt or gain or loss from foreclosure or repossession.

You may be able to exclude cancelled debt income if all or part of the debt was discharged in bankruptcy; you are insolvent; or the debt is a qualified farm debt. Refer to Publication 908 (PDF), Bankruptcy Tax Guide, and Form 982 (PDF), Reduction of Tax Attributes Due to Discharge of Indebtedness for more information.

You are also required have to compute gain or loss on disposition of the property. You must still follow this step even if you have no discharge of indebtedness income. The difference between the sum of the amount of money received, the Fair Market Value of any other property received incident to the transfer of the property subject to foreclosure, and the amount of any nonrecourse debt from which you are relieved, and your adjusted basis in the property is your gain or loss. No portion of the gain on property which subject only to nonrecourse debt is treated as cancellation of indebtedness income. The amount realized includes any nonrecourse debt from which you are relieved in the transaction. If the property foreclosed was subject to recourse debt, the gain or loss on the disposition of the property is the difference between the FMV of the property and your adjusted basis in the property. The amount of recourse debt in excess of the FMV of the property will constitute cancellation of indebtedness income if the debt is forgiven. If the property is business property, report it on Form 4797 (PDF), Sales of Business Property, and follow the normal rules. If the property is a personal home, report it on Form 1040, Schedule D (PDF) if you have taxable gain following the normal rules for sale of a main home. Refer to Publication 523 (PDF), Selling Your Home, and Publication 544 (PDF), Sales and Other Dispositions of Assets, for more information.

References:

• Publication 523 (PDF), Selling Your Home
• Publication 537 (PDF), Installment Sales
• Publication 544 (PDF), Sales and Other Dispositions of Assets
• Publication 908 (PDF), Bankruptcy Tax Guide
• Form 982 (PDF), Reduction of Tax Attributes Due to Discharge of Indebtedness
• Form 1040 (PDF), U.S. Individual Income Tax Return
• Form 1040, Schedule D (PDF), Capital Gains and Losses
• Form 1099A (PDF), Acquisition or Abandonment of Secured Property
• Form 1099C (PDF), Cancellation of Debt
• Form 4797 (PDF), Sales of Business Property

If the special holding periods are met, generally treat gain or loss from the sale of the stock as capital gain or loss. However, you may have compensation income if:

You must hold the stock for more than 2 years from the time the stock option is granted to you and for more than 1 year from when the stock was transferred to you. If you meet the holding period requirement and the option price was below the fair market value of the stock at the time the option was granted, you report the difference as compensation income (wages) when you sell the stock. Generally, this compensation income cannot be more than your gain on the sale. If your gain is more than the amount you report as compensation income, the remainder is a capital gain reported on Form 1040, Schedule D (PDF). If you sell the stock for less than the amount you paid for it, your loss is a capital loss.

For more information, refer to Publication 525 (PDF), Taxable and Nontaxable Income, and Publication 551 (PDF), Basis of Assets.

References:

• Publication 525 (PDF), Taxable and Nontaxable Income
• Publication 551 (PDF), Basis of Assets
• Form 1040, Schedule D (PDF), Capital Gains and Losses

If you are able to defer the reporting of gain or loss until the year the short sale closes, the following will allow you to reconcile your Forms 1099-B to your Schedule D and still not recognize the gain or loss from the short sale:

For more on these rules and exceptions that may apply, refer to Chapter 4 of Publication 550 (PDF), Investment Income and Expenses.

References:

• Publication 550 (PDF), Investment Income and Expenses
• Tax Topic 409, Capital gains and losses

In general, you cannot determine your gain or loss until you purchase the stock that you are going to deliver to close the short sale. You still need to report the gross proceeds on Schedule D so that the total of lines 3 and 10, column (d), reconciles with all of your Forms 1099-B.

Also, in columns b and c write "short sale." In column f, write "see attached statement." In the statement, explain the details of the short sale and that it is not closed. Include your name as it appears on your return and your social security number.

For more information on rules and exceptions that may apply, refer to Chapter 4 of Publication 550 (PDF), Investment Income and Expenses.

References:

• Publication 550 (PDF), Investment Income and Expenses
• Tax Topic 409, Capital gains and losses

You do not normally have to report a return of principal (or return of capital) on your tax return. You must reduce your basis in the fund, which should be recorded in your records. However, basis cannot be reduced below zero. Once your basis reaches zero, any return of principal is capital gain and must be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses.

References:

• Publication 564 (PDF), Mutual Fund Distributions
• Form 1040, Schedule D (PDF)

A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management. You own shares in the fund, but the fund owns assets such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for its investors is to sell these assets at a gain. When this happens, the nature of the income is capital gain, which gets passed on to you. These are called capital gain distributions, which are distinguished on Form 1099-DIV from income that is from other profits, called ordinary dividends.

References:

• Publication 564 (PDF), Mutual Fund Distributions

Your Form 1099-DIV is correct, but so is your annual statement. For the purpose of reporting taxable income on your tax return, capital gain distributions are defined as long-term capital gains only. Short-term capital gains are taxed as ordinary income and are therefore treated as ordinary dividends on Form 1099-DIV.

Report the fund's short-term capital gains as part of your total ordinary dividends on line 9 of your Form 1040 or 1040A. (You may have to also report them on Form 1040, Schedule B (PDF), Interest & Dividend Income or Form 1040A, Schedule 1 (PDF), Interest and Ordinary Dividends. Refer to the instructions to the schedule.)

References:

• Publication 564 (PDF), Mutual Fund Distributions

You cannot. You did not sell the assets that produced this income, the mutual fund did. All income that is taxed as ordinary income flows through to you as ordinary dividends, whether the income is from interest, dividends, or the sales of short-term capital assets.

In the same manner, you report capital gain distributions as long-term capital gains on your return regardless of how long you have owned the shares in the mutual fund. This is because the asset was held and then sold by, the mutual fund, not by you.

Report your total ordinary dividends (including the short-term capital gains in your mutual fund) on Form 1040, line 9, or Form 1040A, line 9, with your other dividends, if any. You may also have to file Form 1040, Schedule B (PDF) , Interest & Dividend Income or Form 1040A, Schedule 1 (PDF), Interest and Ordinary Dividends.

References:

• Tax Topic 409, Capital gains and losses
• Publication 550 (PDF), Investment Income and Expenses

If you use the dwelling unit as a home (based on degree of personal use) and you rent it for fewer than 15 days during the year, do not include any of the rent in your income and do not deduct any of the rental expenses. If you do not meet the tests for using your timeshare as your home, the income is reportable on Form 1040, Schedule E (PDF), Supplemental Income and Loss.

References:

• Form 1040, Schedule E (PDF), Supplemental Income and Loss
• Publication 527 (PDF), Residential Rental Property

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