What is a capital gain distribution on a mutual fund?
Capital gain distributions are earned when a mutual fund manager sells a security within the fund portfolio for a gain. The annual net gain recognized from sales within the fund is passed through to shareholders and reported on Form 1099-DIV. Long-term gain distributions are listed in Box 2a, Capital Gain Distributions, while short-term gain distributions are included in Box 1a, Ordinary Dividends. The amount of time the fund portfolio held the shares – not how long the individual held shares of the mutual fund – determines whether the gain is considered long-term or short-term. Long-term capital gain distributions are reportable on Form 1040, Schedule D, line 13. Ordinary dividends are reportable on Form 1040, Line 9a.
