What are Undistributed Capital Gains?
If a mutual fund doesn’t distribute its entire capital gains to its investors, the fund is subject to tax on the undistributed portion of its capital gains. If your mutual fund does keep a portion of its capital gains, it will report your share of the gain and your share of the taxes it paid on Form 2439. You must report capital gain income for your share of the undistributed gain. You’re also allowed a tax credit for your share of the taxes that the mutual fund paid because you, as a fund shareholder, are considered to have paid the taxes on your portion of the gain. The instructions printed on the back of Form 2439 explain how to report these amounts on your tax return. You should attach copy B of Form 2439 to your return and keep copy C for your records. The difference between your share of the undistributed gain and the taxes paid represents an increase to your adjusted cost basis in the mutual fund (since you’re taxed on income that wasn’t distributed to you).
Related Questions
- Why are the capital gains for the Wells Fargo Advantage Precious Metals Fund and Wells Fargo Advantage Small Cap Growth Fund larger (as a percentage of the Funds’ NAV) than the distributions for other funds?
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- What are Undistributed Capital Gains?
