Capital gain distributions may be paid by mutual funds, other regulated investment companies, or real estate investment trusts (REITs). These distributions are made from the fund’s net realized long-term gains. If the distributions are net realized short-term capital gains, they are reported on Form 1099-DIV as ordinary dividends rather than capital gains, and must be reported as dividend income, not taxable at capital gain rates.
Ordinary Dividends and Qualified Dividends
The Form 1099-DIV that you receive may have different amounts reported. The amount that is reported in box 1a is the amount of ordinary dividend income. This amount would be reported on the appropriate line of Form 1040A or 1040, and on Schedule B, Interest and Ordinary Dividends, if you had over $1,500 of interest income or over $1,500 of ordinary dividend income.
The amount reported in box 1b are “qualified dividends” that may be eligible for special 15% or 5% capital gain rates. These would go into the “Qualified Dividends and Capital Gain Worksheet” (in the instructions for Form 1040), or the “Schedule D Tax Worksheet” (in the instructions for Schedule D) to figure the tax. The amount to be included in capital gain distributions on Schedule D is reported in box 2a of Form 1099-DIV. These capital gain distributions are reported as long-term capital gains, regardless of how long you owned your shares.
Other amounts that may be reported on Form 1099-DIV:
The amount shown in box 2b should be entered into the Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D.
The amount in box 2c may qualify under the Exclusion of Gain on Qualified Small Business (QSB) Stock.
The amount in box 2d should be entered into the 28% Rate Gain Worksheet in the instructions for Schedule D.
You may not need to file Schedule D if both of the following apply:
The only amounts you have to report on Schedule D are capital gain distributions from box 2 a of Form 1099-DIV.
You do not have any amount reported on Form 1099-DIV as unrecaptured section 1250 gain, section 1202 gain, or collectibles gain (28% gain).
If both of the above apply, enter your total capital gain distributions on the line for “Capital gain or (loss)” on Form 1040, check the box on that line, and use the Qualified Dividends and Capital Gain Tax Worksheet to figure your tax.
Undistributed Capital Gains
Undistributed capital gains, reported on Form 2439, must be treated as distributions, even though you did not actually receive them. The amount reported in box 1a of Form 2439 represents your share of the undistributed long-term capital gains of the regulated investment company (including a mutual fund) or real estate investment trust.
Other amounts that may be reported on Form 2439:
If there is an amount in box 1c, include it in the Qualified 5-Year Gain Worksheet.
If there is an amount in box 1d, include it in the Unrecaptured Section 1250 Gain Worksheet.
If there is an amount in box 1e, see Exclusion of Gain on Qualified Small Business (QSB) Stock.