Mutual Funds (Costs, Distributions, Etc.) 4 | Internal Revenue Service

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4. Mutual Funds (Costs, Distributions, etc.) 4

Question I received a 1099-DIV showing a capital gain. Why do I have to report capital gains from my mutual funds if I never sold any shares of that mutual fund? Answer

A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management.

You own shares in the mutual fund but the fund owns capital assets, such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for you is to sell these assets at a gain.

If the mutual fund held the capital asset for more than one year, the nature of the income from a sale of the capital asset is capital gain, and the mutual fund passes it on to you as a capital gain distribution. These capital gain distributions are usually paid to you or credited to your mutual fund account, and are considered income to you. Form 1099-DIV, Dividends and Distributions distinguishes capital gain distributions from other types of income, such as ordinary dividends.

Consider capital gain distributions as long-term capital gains no matter how long you've owned shares in the mutual fund.

Report the amount shown in box 2a of Form 1099-DIV on line 13 of Schedule D (Form 1040), Capital Gains and Losses. If you have no requirement to use Schedule D (Form 1040), report this amount on line 7 of Form 1040, U.S. Individual Tax Return or Form 1040-SR, U.S. Tax Return for Seniors and check the box. Review the Instructions for Form 1040 (and Form 1040-SR) for more information.

Additional Information Publication 550, Investment Income and Expenses (Including Capital Gains and Losses) Tax Topic 404 - Dividends Category Capital gains, losses, and sale of home Sub-Category Mutual funds (costs, distributions, etc.) Page Last Reviewed or Updated: 03-Jul-2025

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