Capital Gain Distributions
What are capital gain distributions?
Mutual funds (regulated investment companies) and real estate investment trusts or REITs pass
capital gains to their investors in the form of capital gain distributions.
Capital gain distributions occur when a mutual fund sells assets for more than their cost and
the realized capital gain is then distributed to the mutual fund's shareholders.
What is the difference between capital gain distributions and capital gains?
Do not confuse capital gain distributions with capital gains that occur when the
owner of a mutual fund or of a capital asset sells shares in the fund or the asset for more than the cost and
realize a capital gain. Capital gain distributions are results of a mutual fund selling assets, not the owner of
the mutual fund cashing out (capital gains).
IRS' Reporting of Mutual Fund Capital Gain Distributions
Capital gain distributions must be reported to the IRS on your income tax return. The mutual
fund will also report the capital gain distribution to the IRS separately.
Capital gain distributions are reported in box 2a of the form 1099 DIV. Capital gain
distributions are reported directly on line 13 of the tax form 1040 IF a Schedule
D, Capital Gains and Losses, is not required.
Is the mutual fund reporting capital gain distributions to the IRS?
Yes. The mutual fund reports its capital gain distributions to the IRS. The information of your
portion of the capital gain distributions from a mutual fund better matches the information the mutual fund reports
to the IRS.