Capital Gain Distributions
If you buy stock in a company and sell it later for a higher price, the money you make is called a capital gain. If you sell the stock after holding it for more than one year, it’s considered a long-term capital gain.
The same is true for mutual funds you invest in. Fund managers buy and sell stocks hoping to make a profit. If the fund holds a stock for more than one year and then sells it, the profit you make as an investor is usually paid out. The profit paid out is a capital gain distribution. This also applies to pay outs made by crediting your cash account.
For tax purposes, Form 1099-DIV, Box 2a reports your capital-gain distributions. You could also receive this on a similar statement from the mutual fund company. These distributions are taxed at a lower rate than ordinary income. They’re treated as long-term gains, regardless of how long you actually owned shares in the mutual fund.
Learn more about employee stock options and get tax answers at H&R Block.
Do you know how to figure your capital gains tax? Learn more from the tax experts at H&R Block.
Learn more about the wash sale rule for investments and get tax answers at H&R Block.
Do you know how to report taxes on stock option sales? Learn more from the tax experts at H&R Block.