Capital Gains Distributions

If you own shares in a mutual fund or real estate investment trust (REIT) that pays out capital gains to shareholders every year or so, these amounts are also reported on Schedule D. The mutual fund company will report the total long-term gains on sales of securities during the year, and report them in Box 2a of Form 1099-DIV. Any short-term gains are included in the amount of ordinary dividends, and they are simply taxed as dividends.

Report your total capital gain distributions on Line 13 of Schedule D. You do not have to file a Schedule D if all of the following apply: the only amounts you have to report are from Box 2a of Forms 1099-DIV; none of your Forms 1099-DIV have an amount listed in Boxes 2b, 2c, or 2d; and you are not filing Form 4952 or the amount on line 4e of that form is zero. Instead, you can enter your capital gain distributions on Line 13 and check the box on that line. However, in that case you must figure your tax using the worksheet on page 35 of the 2007 Form 1040 Instructions to get the benefit of the special tax rate on capital gains.

In some cases, you may have undistributed capital gains to deal with, if your mutual fund or REIT reports them to you.