|
Capital gains from the sale of securities within a mutual fund portfolio are
passed on to shareholders in the form of capital gains distributions. These distributions are taxed differently depending on the length of time an individual security is held before a fund sells it. Any gain derived by a mutual fund from the sale of a security held for 12 months or less is considered to be a "short-term" capital gain, and is taxed as ordinary income. Short-term capital gains are combined with any dividend income you may have earned and reported as "ordinary dividends" in box 1a on Form 1099-DIV. A portion of income dividends designated and paid by a mutual fund as qualified dividend income may be eligible for taxation at long-term capital gain rates, provided certain holding period requirements are met.*
For federal income tax purposes, if the security is held by a mutual fund longer than 12 months before it is sold, the capital gain is considered to be "long-term" no matter how long you have owned your shares in the mutual fund.*
Investors whose only capital gains for 2008 are capital gain distributions from a mutual fund generally will not have to file Schedule D with their 2008 Form 1040. Please consult your tax advisor or refer to the Form 1040 instructions to see if you need to complete Schedule D. Below is an outline of the capital gains tax categories and instructions on how to use the information reported on your Form 1099-DIV.
How to complete tax forms for capital gains
|
Capital gains tax category
|
Where reported on Form 1099-DIV
|
Where to report on IRS form(s)
|
Short-term gains
Individual securities held for 12 or fewer months. Taxed as ordinary
income. |
Box 1a
Total ordinary dividends
|
"Ordinary dividends" line 9a on Form 1040 or 1040A. Also on line 5 of Schedule B (Form 1040) or Schedule 1 (Form 1040A) as appropriate.
|
Box 1b
Qualified dividends** |
"Qualified dividends" line on line 9b of Form 1040 or 1040A. Also on Qualified Dividends and Capital Gain Tax Worksheet, line 2, or Schedule D Tax Worksheet, line 2, whichever applies.
|
Long-term gains
Individual securities held for more than 12 months.* |
Box 2a
Total capital gains distributions |
If you are required to complete Schedule D (Form 1040), report the entire amount in Part II, line 13, of Schedule D; otherwise on line 13 of Form 1040 or line 10 of Form 1040A and Qualified Dividends and Capital Gain Tax Worksheets, line 3.
|
*The special provisions dealing with qualified dividend income, and the reduced rate of taxation of long-term capital gains (the 0% or 15% capital gains rates) that were adopted as part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, as amended by the Tax Increase Prevention and Reconciliation Act of 2005, are scheduled to sunset on Dec. 31, 2010, unless extended or made permanent before that date.
**This is the portion of the amount in box 1a that may be eligible for the 15% or 0% capital gains rates. See the Form 1040/1040A instructions for how to determine this amount.
The information contained in the Tax Center is not intended to be legal or tax advice. If you need assistance preparing your tax return, please consult a tax advisor.
Information may be abridged and therefore incomplete. Any discussion pertaining to taxes in this communication (including attachments) may be part of the promotion or marketing of a product. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
|
