Fund distributes LT Cap gain?

Hi, Stubby.

Look at Line 13 on Schedule D of Form 1040. This is where you enter "Capital gain distributions". It is only in the Long Term Gains section of Schedule D because short term gains distributions are simply included in "ordinary income", along with other dividends.

For further explanation, click in the amount box for Line 13, then press F1 for the TurboTax Help file.

RC

Hi, Stubby.

You apparently clicked Reply to Sender, rather than Reply to Group, and your last response came as an email to me, rather than as a post to this newsgroup. But I see that you used Mozilla or something else that may work differently from Windows Live Mail, which I use.

I will copy your followup question here so that the whole newsgroup can participate in the discussion, and then I'll try to answer it.

Thanks, RC. I'll puzzle that out tomorrow. Funds have to distribute gains every year so this cannot be a long term gain, meaning that Vanguard or Quicken is mischaracterizing the money.

Mutual funds buy and sell shares all the time, and they realize gains and losses on those stocks, just as they collect dividends on stocks. By the end of each year, they must pay out practically all their income as dividends to the fund's shareholders, and the shareholders must pay tax on that income. If the fund collects a million dollars in dividends from Intuit, your share might be $100. When the fund pays the dividend to you, you will report it as a dividend from the fund, not from Intuit.

If the fund sells those Intuit shares after the fund has held the stock for five years and makes a million dollars profit, your share of that gain might be $100. When the fund pays that gain to you, it will report a million-dollar long term capital gain because they held the Intuit shares more than one year. You will report your $100 share as long term capital gain, even if you bought the mutual fund shares just a week ago. It's not your gain; it is your share of the fund's gain.

That's why all the investment pundits advise investors to check out a mutual fund before buying it late in a year. If the fund has realized a lot of gains this year, a new shareholder will receive a large long term capital gains dividend - which he must pay tax on, even if the full dividend is reinvested in the fund immediately. And even if the gains occurred earlier in the year, before the investor even owned shares in the fund! Which is OK IF the investor understands what is happening and plans for it. But if it catches him by surprise, he may wind up with a big tax bill - and no cash to pay it with.

To answer your specific question: Yes, the FUND must report details of the stocks sold. All you report is what the fund reports to you on Form

1099-DIV. And the capital gains dividends reported on that form go to Line 13 on Schedule D of your Form 1040.

Please check with your own CPA to be sure that the rules haven't changed since I retired.

RC

"R. C. White" wrote in news:wsydne8QG5NpCBLUnZ2dnUVZ snipped-for-privacy@posted.grandecom:

Mutual Funds are set up as "pass throughs" -- they don't pay any tax themselves. When the fund managers buy and sell stocks or other assets within the mutual fund, they keep track of the capital gain/ loss and holding period for you. Prior to 1986 they did not need to report out the capital to you in the form of a dividend -- they could just keep it on the books. The tax act of 1986 requires mutual funds to pay out long ternm capital gains at least once a year, or the mutual fund itself will be liable for the tax. So they pay it as a dividend and put it in the proper box in the 1099-Div (Box 2a).

scott s. .