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

How To Offset Capital Gains | H&R Block

Understanding how to offset capital gains is a topic that many tax filers avoid. Brush up on key terms and the process with advice from H&R Block tax pros.

Taxes on Savings Bonds – Form 8815 & More

Learn more about taxing interest on savings bonds and education savings bond rules with the tax experts at H&R Block.

Wash Sales

Learn more about the wash sale rule for investments and get tax answers at H&R Block.

Holding Period

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