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.

Related Topics

Related Resources

Holding Period

What is a holding period? Learn more about an investment holding period and get tax answers at H&R Block.

How Renting Out Your Extra Bedrooms Affects Your Taxes

Thinking about renting out a room in your home? Learn more about the potential tax implications with the experts at H&R Block.

Form 709 – What Is It? When Should It Be Filed?

Form 709 is the IRS tax form that’s required in certain gift giving situations. Let the experts at H&R Block help you determine when Form 709 should be filed.

What Is a Wash Sale?

Generally, a wash sale is what occurs when you sell securities at a loss and buy the same shares within 30 days before or after the sale date. Wash sale rules are designed to prevent investors from creating a deductible loss for the purpose of offsetting gains with only a short interruption in owning the security.