32.6 Tax Credits From Mutual Funds
Undistributed capital gains.
Filing Tip
Some mutual funds retain their long-term capital gains and pay capital gains tax on those amounts. Even though not actually received by you, you include as a capital gain distribution on your return the amount of the undistributed capital gain allocated to you by the fund. If the mutual fund paid a tax on the undistributed capital gain, you are entitled to a tax credit.
Table 32-1 Reporting Mutual-Fund Distributions for 2012
| Type of Distribution | Shown by the Fund in | How To Report |
| Ordinary dividends and short-term capital gain distributions. | Box 1a, Form 1099-DIV | Box 1a of Form 1099-DIV shows taxable ordinary dividends. The total includes ordinary dividends and short-term capital gain distributions, which are taxed as ordinary income, and also qualified dividends, if any, which are taxable at the 15% or 0% capital gain rate. The Box 1a total must be entered on Line 9a of Form 1040 or 1040A. If your total ordinary dividends from all sources exceed $1,500 or if you received as a nominee ordinary dividends on behalf of another taxpayer, you must itemize the ordinary dividends on Line 5 of Schedule B (Form 1040). |
| Qualified dividends (eligible for 15% or 0% capital gain rate if you held shares at least 61 days during the 121-day period beginning 60 days before the exdividend date). | Box 1b, Form 1099-DIV | Box 1b shows the portion of the Box 1a amount that is eligible for the 15% or 0% capital gain rate. Report these qualified dividends on Line 9b of Form 1040 or 1040A. Unless you have 28% rate gains or unrecaptured Section 1250 gains that have to be reported on the “Schedule D Tax Worksheet” in the Schedule D instructions, you may use the “Qualified Dividends and Capital Gain Tax Worksheet’” in the Form 1040 or Form 1040A instructions to figure your regular tax liability using the capital gain rates. |
| Capital gain distributions. (This represents your share of net long-term gains realized by a fund on sales made from its portfolio.) | Boxes 2a–2d, Form 1099-DIV | Box 2a of Form 1099-DIV shows your total capital gain distributions. If your only capital gains are capital gain distributions, you do not have capital losses, and no amount is shown in Boxes 2b–2d of all your Forms 1099-DIV, you generally do not have to complete Schedule D (Form 1040) and may report the capital gain distributions from Box 2a directly on Line 13 of Form 1040 or Line 10 of Form 1040A. In that case, you use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or 1040A instructions to figure your tax using the capital gain rates. If Schedule D is required, the total capital gain distributions from Box 2a must be reported on Line 13 of Schedule D and the rest of Schedule D completed. Box 2b shows the part of Box 2a that is unrecaptured Section 1250 gain from the sale of depreciable buildings. Box 2c shows the part of Box 2a that is Section 1202 gain eligible for an exclusion(5.7). Box 2d shows the amount of Box 2a that is 28% rate gain from sales of collectibles. If you have an amount in Box 2b, 2c, or 2d, you must complete Schedule D. |
| Return of capital distributions (nontaxable) | Box 3, Form 1099-DIV | A return of capital distribution is not taxable income. However, if your basis for your shares has been reduced to zero by return of capital gain distributions, report additional nontaxable distributions as either longterm or short-term capital gain on Form 8949, depending on how long you held the shares (32.3). |
| Exempt-interest dividends | Box 10, Form 1099-DIV | Report along with other tax-exempt interest on Line 8b of Form 1040 or Form 1040A. The portion of the exempt-interest dividends that is attributable to private activity bonds subject to AMT (23.3) is shown in Box 11 of Form 1099-DIV |
| Undistributed capital gains | Undistributed gains shown on Form 2439, Box 1a Tax paid by fund shown on Form 2439, Box 2 | Box 1a of Form 2439 shows your total share of undistributed long-term capital gains. The undistributed gains are reported on Line 11 of Schedule D. To get a tax credit for the tax paid by the fund, enter the tax in the “Payments” section of Form 1040. Increase the basis of your mutual-fund shares by the excess of the undistributed gains included on Schedule D over the tax credit claimed on Form 1040. |
| Fund expenses from non–publicly offered funds | Box 5, Form 1099-DIV | If you itemize deductions on Form 1040, the expenses are deductible as miscellaneous expenses, subject to the 2% adjusted gross income floor (19.1). |
| Foreign taxes | Box 6, Form 1099-DIV. | The foreign taxes may be claimed as a tax credit on Form 1116 or as an itemized deduction on Schedule A of Form 1040 (36.13). |
| Federal income tax withheld | Box 4, Form 1099-DIV. Box 4 Form 1099-INT. | If you are subject to back-up withholding, the amount of federal income tax withheld should be included on Line 62 of Form 1040 (Line 36 of Form 1040A). |
To claim the credit, check the Form 2439 sent to you by your fund, which lists your share of undistributed capital gain and the amount of tax paid on it by the fund. Enter your share of the tax the fund paid on this gain in the “Payments” section of Form 1040, and check the box for Form 2439. Attach Copy B of Form 2439 to your return to support your tax credit. Increase the basis of your shares by the excess of the undistributed capital gain over the amount of tax paid by the mutual fund, as reported on Form 2439.
Foreign tax credit or deduction.
You may be able to claim a foreign tax credit (on Form 1116) or a deduction on Schedule A for your share of the fund’s foreign taxes. In Box 6 of Form 1099-DIV, the fund will report your share of the foreign taxes paid by the fund. The fund should give you instructions for claiming the foreign tax credit or deduction (36.13).