Capital gains rates and forms

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 to the shareholder. Short-term capital gains are combined with any dividend income you may have earned and reported as "Total ordinary dividends" in box 1a on Form 1099-DIV.

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 2013 are capital gain distributions from a mutual fund generally will not have to file Schedule D with their 2013 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 and qualified dividends

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 less 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 and Form 1040A).
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 gain 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.

* Long-term capital gains are taxed at rates of 0%, 15%, or 20% depending on your income bracket. An additional 3.8% Medicare tax may be imposed on certain net investment income (including ordinary dividends and capital gain distributions received from a mutual fund) to the extent the recipient’s gross income exceeds a threshold amount.  

** 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 rate, provided certain holding period requirements are met. This is the portion of the amount in box 1a that may be eligible for the 0%, 15%, or 20% capital gains rates. See Form 1040/1040A instructions for how to determine this amount. An additional 3.8% Medicare tax may be imposed on certain net investment income (including ordinary dividends and capital gain distributions received from a mutual fund) to the extent the recipient’s gross income exceeds a threshold 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.