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.