Table of Contents
A distribution you receive from a mutual fund may be an ordinary dividend, a qualified dividend, a capital gain distribution, an exempt-interest dividend, or a nondividend distribution. The fund will send you a Form 1099-DIV or similar statement telling you the kind of distribution you received. This section discusses the tax treatment of each kind of distribution, describes how to treat reinvested distributions, and explains how to report distributions on your return.
You may be treated as having received a distribution of capital gains even if the fund does not distribute them to you. See Undistributed capital gains under Capital Gain Distributions.
An ordinary dividend is a distribution by a mutual fund out of its earnings and profits. Include ordinary dividends that you receive from a mutual fund as dividend income on your individual income tax return.
Ordinary dividends are the most common type of dividends. They will be reported in box 1a of Form 1099-DIV or on a similar statement you receive from the mutual fund.
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The dividend must have been paid by a U.S. corporation or a qualified foreign corporation. See chapter 1 of Publication 550 for the definition of a qualified foreign corporation.
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The dividend must not be of a type excluded by law from the definition of a qualified dividend. See chapter 1 of Publication 550 for a list of these types of dividends.
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You must meet the holding period requirement (discussed next).
These distributions are paid by mutual funds from their net realized long-term capital gains. The Form 1099-DIV (box 2a) you receive or the fund's statement will tell you the amount you are to report as a capital gain distribution. Capital gain distributions are taxed as long-term capital gains regardless of how long you have owned the shares in the mutual fund.
A mutual fund may pay exempt-interest dividends to its shareholders if it meets certain requirements. These dividends are paid from tax-exempt interest earned by the fund. Since the exempt-interest dividends keep their tax-exempt character, do not include them in income. However, you may need to report them on your return. See Information reporting requirement, next. The mutual fund should send you a Form 1099-INT showing your exempt-interest dividends. Exempt-interest dividends should be shown in box 8 of Form 1099-INT.
A nondividend distribution is a distribution that is not out of earnings and profits and is a return of your investment, or capital, in the mutual fund and is shown in box 3 of Form 1099-DIV.
A nondividend distribution reduces your basis in the shares. Basis is explained under Keeping Track of Your Basis, later. Your basis cannot be reduced below zero. If your basis is zero, you must report the nondividend distribution on your tax return as a capital gain. Report this capital gain on Schedule D (Form 1040). Whether it is a long-term or short-term capital gain depends on how long you held the shares.
Example.
You bought shares in a mutual fund in 2003 for $12 a share. In 2004, you received a nondividend distribution of $5 a share. You reduced your basis in each share by $5 to an adjusted basis of $7. In 2005, you received a nondividend distribution of $1 per share and further reduced your basis in each share to $6. In 2006, you received a nondividend distribution of $2 per share. Your basis was reduced to $4. In 2007, the nondividend distribution from the mutual fund was $5 a share. You reduce your basis in each share to zero and report the excess ($1 per share) as a long-term capital gain on Schedule D.
Most mutual funds permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. You must report the reinvested amounts the same way as you would report them if you received them in cash. This means that reinvested ordinary dividends and capital gain distributions generally must be reported as income. Reinvested exempt-interest dividends generally are not reported as income. Reinvested return of capital distributions are reported as explained under Nondividend Distributions, earlier. See Keeping Track of Your Basis, later, to determine the basis of the additional shares.
You must report mutual fund distributions on Form 1040 or Form 1040A. You cannot report mutual fund distributions on Form 1040EZ.
You cannot use Form 1040A and must use Form 1040 in either of the following situations.
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You received a nondividend distribution that must be reported as a capital gain because it is more than your basis in your mutual fund shares.
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You must report an undistributed capital gain.
Do not include capital gain distributions as dividend income on Form 1040A or Schedule 1.
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None of the Forms 1099-DIV (or substitute statements) you received have an amount in box 2b, 2c, or 2d.
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You do not have to file Form 1040 for any other reason. (For example, you must not have any other capital gains or any capital losses.)
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The only amounts you would have to report on Schedule D are capital gain distributions from box 2a of Form 1099-DIV (or similar statement).
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You do not have an amount in box 2b, 2c, or 2d, of any Form 1099-DIV (or similar statement).
Table 1. Reporting Mutual Fund Distributions on Form 1040 or 1040A
If you receive . . . | AND . . . | Then report the distribution on: | |
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Form 1040 . . . | Form 1040A . . . | ||
ordinary dividends
(Form 1099-DIV, box 1a) |
|
line 9a | line 9a |
|
|
|
|
qualified dividends
(Form 1099-DIV, box 1b) |
|
|
|
capital gain distributions
(Form 1099-DIV, box 2a) |
you do not have to file Form 1040, Schedule D |
|
|
you have to file Form 1040, Schedule D (See Schedule D instructions for line 13) | Schedule D, Line 13 | you must use Form 1040; you cannot use Form 1040A | |
section 1250, 1202, or collectibles gain
(Form 1099-DIV, box 2b, 2c, or 2d) |
Schedule D (see the Schedule D instructions) | you must use Form 1040; you cannot use Form 1040A | |
nondividend distributions
(Form 1099-DIV, box 3) |
generally not reported* | generally not reported* | |
exempt-interest dividends (Form 1099-INT, box 8) | line 8b | line 8b | |
undistributed capital gains
(Form 2439, boxes 1a-1d) |
Schedule D (see the Schedule D instructions) | you must use Form 1040; you cannot use Form 1040A | |
* Report any amount in any excess of your basis in your mutual fund shares on Schedule D. Use line 8 if you held the shares more than one year. Use line 1 if you held your mutual fund shares 1 year or less. |
Revenue Service and give the actual owner a copy. See the instructions for Forms 1099 or Form 2439 for details. If you received an ordinary dividend distribution as a nominee, report it on line 5 of Schedule B (Form 1040) or Schedule 1 (Form 1040A). Under your last entry on line 5, enter a subtotal of all ordinary dividends listed. Below this subtotal, enter “Nominee Distribution” and show the total ordinary dividends you received as a nominee. Subtract this amount from the subtotal and enter the result on line 6. If you received a capital gain distribution or were allocated an undistributed capital gain as a nominee, report only the amount that belongs to you on line 10 of Form 1040A, line 13 of Form 1040, or Schedule D (Form 1040), whichever is appropriate. Attach a statement to your return showing the full amount you received or were allocated and the amount you received or were allocated as a nominee.
You should keep track of your basis in mutual fund shares because you need the basis to figure any gain or loss on the shares when you sell, exchange, or redeem them.
The original basis of mutual fund shares you bought is usually their cost or purchase price. The purchase price usually includes any commissions or load charges paid for the purchase.
Example.
You bought 100 shares of Fund A for $10 a share. You paid a $50 commission to the broker for the purchase. Your cost basis for each share is $10.50 ($1,050 ÷ 100).
When you buy or sell shares in a fund, keep the confirmation statements you receive. The statements show the price you paid for the shares when you bought them and the price you received for the shares when you disposed of them. The information from the confirmation statement when you purchased the shares will help you figure your basis in the fund.
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You get a reinvestment right because of the purchase of the shares or the payment of the fee or charge.
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You dispose of the shares within 90 days of the purchase date.
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You acquire new shares in the same mutual fund or another mutual fund, for which the fee or charge is reduced or waived because of the reinvestment right you got when you acquired the original shares.
The original cost basis of mutual fund shares you acquire by reinvesting your distributions is the amount of the distributions used to purchase each full or fractional share. This rule applies even if the distribution is an exempt-interest dividend that you do not report as income.
When you acquire shares through reinvestment, keep the statements that show each date, amount, and number of full or fractional shares purchased. Keep track of any adjustments to basis of the shares as they occur.
Generally, you must know the basis per share to compute gain or loss when you dispose of the shares. This is explained under Identifying the Shares Sold, later.
To determine your original basis of mutual fund shares you acquired by gift, you must know:
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The donor's adjusted basis,
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The date of the gift,
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The fair market value (the last quoted public redemption price) of the shares at the time of the gift, and
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Any gift tax paid on the gift of the shares.
Example.
You are given mutual fund shares with an adjusted basis of $10,000 at the time of the gift. The FMV of the shares at the time of the gift is $9,000. You later sell the shares for $9,500. The basis for figuring a gain is $10,000, so there is no gain. There also is no loss, since the basis for figuring a loss is $9,000. In this situation, you have neither a gain nor a loss.
If you inherited shares in a mutual fund, your original basis is generally the fair market value (FMV) (the last quoted public redemption price) on the date of the decedent's death, or the alternate valuation date if chosen for estate tax purposes.
After you acquire mutual fund shares, you may need to make adjustments to your basis. The adjusted basis of your shares is your original basis (defined earlier), increased or reduced as described here.
Table 2. Mutual Fund Record
Mutual Fund | Acquired 1 | Adjustment to Basis Per Share | Adjusted 2 Basis Per Share | Sold or redeemed | |||||||
Date | Number of Shares | Cost Per Share | Date | Number of Shares | |||||||
1 Include share received from reinvestment of distributions. | |
2 Cost plus or minus adjustments. |
Table 2. This is a worksheet you can use to keep track of the adjusted basis of your mutual fund shares. Enter the cost per share when you acquire new shares and any adjustments to their basis when the adjustment occurs. This worksheet will help you figure the adjusted basis when you sell or redeem shares.
When you sell or exchange your mutual fund shares, or if they are redeemed (a redemption), you will generally have a taxable gain or a deductible loss. This also applies to shares of a tax-exempt mutual fund. Sales, exchanges, and redemptions are all treated as sales of capital assets. The amount of the gain or loss is the difference between your adjusted basis (defined earlier) in the shares and the amount you realize from the sale, exchange, or redemption. This is explained further under Gains and Losses, later.
Recordkeeping. When there is a sale, exchange, or redemption of your shares in a fund, keep the confirmation statement you receive. The statement shows the price you received for the shares and other information you need to report gain or loss on your return.
To figure your gain or loss when you dispose of mutual fund shares, you need to determine which shares were sold and the basis of those shares. If your shares in a mutual fund were acquired all on the same day and for the same price, figuring their basis is not difficult. However, shares are generally acquired at various times, in various quantities, and at various prices. Therefore, figuring your basis can be more difficult. You can choose to use either a cost basis or an average basis to figure your gain or loss.
You can figure your gain or loss using a cost basis only if you did not previously use an average basis for a sale, exchange, or redemption of other shares in the same mutual fund.
To figure cost basis, you can choose one of the following methods.
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Specific share identification.
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First-in first-out (FIFO).
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Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer, and
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Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular shares sold or transferred.
You can figure your gain or loss using an average basis only if you acquired the shares at various times and prices, and you left the shares on deposit in an account handled by a custodian or agent who acquires or redeems those shares.
To figure average basis, you can use one of the following methods.
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Single-category method.
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Double-category method.
Once you elect to use an average basis, you must continue to use it for all accounts in the same fund. (You must also continue to use the same method.) However, you may use the cost basis (or a different method of figuring the average basis) for shares in other funds, even those within the same family of funds.
Example.
You own two accounts that hold shares of the income fund issued by Company A. You also own 100 shares of the growth fund issued by Company A. If you elect to use average basis for the first account of the income fund, you must use average basis for the second account. However, you may use cost basis for the growth fund.
You may be able to find the average basis of your shares from information provided by the fund.
Example.
You bought 400 shares in the LJO Mutual Fund: 200 shares on May 15, 2006, and 200 shares on May 14, 2007. On November 9, 2007, you sold 300 shares. The basis of all 300 shares sold is the same, but you held 200 shares for more than 1 year, so your gain or loss on those shares is long term. You held 100 shares for 1 year or less, so your gain or loss on those shares is short term.
1) | Enter the total adjusted basis of all the shares you owned in the fund just before the sale. (If you made an earlier sale of shares in this fund, add the adjusted basis of any shares you still owned after the last sale and the adjusted basis of any shares you acquired after that sale.) | $ |
2) | Enter the total number of shares you owned in the fund just before the sale. | |
3) | Divide the amount on line 1 by the amount on line 2. This is your average basis per share. | $ |
4) | Enter the number of shares you sold. | |
5) | Multiply the amount on line 3 by the amount on line 4. This is the basis of the shares you sold. | $ |
Example 1.
You bought 300 shares in the LJP Mutual Fund: 100 shares in 2004 for $1,000 ($10 per share); 100 shares in 2005 for $1,200 ($12 per share); and 100 shares in 2006 for $2,600 ($26 per share). Thus, the total cost of your shares was $4,800 ($1,000 + $1,200 + $2,600). On May 17, 2007, you sold 150 shares. The basis of the shares you sold is $2,400 ($16 per share), figured as follows.
1) | Enter the total adjusted basis of all the shares you owned in the fund just before the sale. (If you made an earlier sale of shares in this fund, add the adjusted basis of any shares you still owned after the last sale and the adjusted basis of any shares you acquired after that sale.) | $4,800 |
2) | Enter the total number of shares you owned in the fund just before the sale. | 300 |
3) | Divide the amount on line 1 by the amount on line 2. This is your average basis per share. | $16 |
4) | Enter the number of shares you sold. | 150 |
5) | Multiply the amount on line 3 by the amount on line 4. This is the basis of the shares you sold. | $2,400 |
Example 2.
The facts are the same as in Example 1, except that you sold an additional 50 shares on December 17, 2007. You do not need to recompute the average basis of the 150 shares you owned at that time because you acquired or sold no shares, and had no other adjustments to basis, since the last sale. Your basis is the $16 per share figured earlier.
Example 3.
The facts are the same as in Example 1, except that you bought an additional 150 shares at $14 a share on September 17, 2007, and then sold 50 shares on December 18, 2007. The total adjusted basis of all the shares you owned just before the sale is $4,500, figured as follows.
1) | Basis of remaining shares ($16 x 150) | $2,400 |
2) | Cost of shares acquired 9/17/07 ($14 x 150) | $2,100 |
3) | Total adjusted basis of all shares owned ($2,400 + $2,100) | $4,500 |
The basis of the shares sold is $750 ($15 a share), figured as follows.
1) | Enter the total adjusted basis of all the shares you owned in the fund just before the sale. (If you made an earlier sale of shares in this fund, add the adjusted basis of any shares you still owned after the last sale and the adjusted basis of any shares you acquired after that sale.) | $4,500 |
2) | Enter the total number of shares you owned in the fund just before the sale. | 300 |
3) | Divide the amount on line 1 by the amount on line 2. This is your average basis per share. | $15 |
4) | Enter the number of shares you sold. | 50 |
5) | Multiply the amount on line 3 by the amount on line 4. This is the basis of the shares you sold. | $750 |
Table 3. Example of How To Figure Basis of Shares Sold
This is an example showing two different ways to figure basis. It compares the cost basis using the FIFO method with the average basis using the single-category method. | ||||
Date | Action | Share Price | No. of Shares | Total Shares Owned |
2/6/06 | Invest $4,000 | $25 | 160 | 160 |
8/7/06 | Invest $4,800 | $20 | 240 | 400 |
12/18/06 | Reinvest $300 dividend | $30 | 10 | 410 |
10/1/07 | Sell 210 shares for $6,720 | $32 | 210 | 200 |
COST BASIS (FIFO) |
To figure the basis of the 210 shares sold on 10/1/07, use the share price of the first 210 shares you bought, namely the 160 shares you purchased on 2/6/06 and 50 of those purchased on 8/7/06. | |||
$4,000 (cost of 160 shares on 2/6/06) | ||||
+ | $1,000 (cost of 50 shares on 8/7/06) | |||
Basis = | $5,000 | |||
AVERAGE BASIS (single-category) | To figure the basis of the 210 shares sold on 10/1/07, use the average basis of all 410 shares owned on 10/1/07. | |||
$9,100 (cost of 410 shares) | ||||
÷410 (number of shares) | ||||
$22.20 (average basis per share) | ||||
$22.20 | ||||
×210 | ||||
Basis = | $4,662 |
You figure gain or loss on the disposition of your shares by comparing the amount you realize with the adjusted basis of your shares. If the amount you realize is more than the adjusted basis of the shares, you have a gain. If the amount you realize is less than the adjusted basis of the shares, you have a loss.
Example 1.
You sold 100 shares of Fund HIJ for $2,500. You paid a $75 commission to the broker for handling the sale. Your Form 1099-B shows that the net sales proceeds, $2,425 ($2,500 - $75), were reported to the IRS. Report $2,425 in column (d) of Schedule D.
Example 2.
You sold 200 shares of Fund KLM for $10,000. You paid a $100 commission at the time of the sale. You bought the shares for $5,000. The broker reported the gross proceeds to IRS on Form 1099-B, so you enter $10,000 in column (d) of Schedule D and increase your basis in column (e) to $5,100.
Note.
Whether you use Schedule D's line 1 (for a short-term gain or loss) or line 8 (for a long-term gain or loss) depends on how long you held the shares, discussed next.
When you dispose of your mutual fund shares, you must determine your holding period. Your holding period determines whether the gain or loss is a short-term capital gain or loss or a long-term capital gain or loss.
Do not confuse the trade date with the settlement date, which is the date by which the mutual fund shares must be delivered and payment must be made.
To find out how long you have held your shares, begin counting on the day after the trade date on which you bought the shares. (Do not count the trade date itself.) The trade date on which you dispose of the shares is counted as part of your holding period.
Example.
If you bought shares on January 4, 2006 (trade date), and sold them on January 4, 2007 (trade date), your holding period would not be more than 1 year. If you sold them on January 5, 2007, your holding period would be more than 1 year (12 months plus 1 day).
Example.
On January 5, 2007, you bought a mutual fund share for $40. On February 2, 2007, the mutual fund paid a $5 dividend from tax-exempt interest, which is not taxable to you. On February 9, 2007, you sold the share for $34. If it were not for the tax-exempt dividend, your loss would be $6 ($40 - $34). However, you must increase the sales price from $34 to $39 (to account for the $5 portion of the loss that is not deductible). You can deduct only $1 as a short-term capital loss.
Example.
On April 10, 2007, you bought a mutual fund share for $20. On June 26, 2007, the mutual fund paid a capital gain distribution of $2 a share, which is taxed as a long-term capital gain. On July 12, 2007, you sold the share for $17.50. If it were not for the capital gain distribution, your loss would be a short-term loss of $2.50 ($20 - $17.50). However, the part of the loss that is not more than the capital gain distribution ($2) must be reported as a long-term capital loss. The remaining $0.50 of the loss can be reported as a short-term capital loss.
Separate your short-term gains and losses from your long-term gains and losses on all the mutual fund shares and other capital assets you disposed of during the year. Then determine your net short-term gain or loss and your net long-term gain or loss.
If you are reporting capital gain distributions on Form 1040A, use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040A instructions to figure your tax. See How To Report, earlier, to see whether you can report your capital gain distributions on Form 1040A.
If you are reporting capital gain distributions on Form 1040, but are not required to file Schedule D, use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax. See How To Report, earlier, to see whether you must file Schedule D.
If you are required to file Schedule D, use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions to figure your tax if both of the following are true.
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You have a net capital gain or qualified dividends (or both). You have a net capital gain if both lines 15 and 16 of Schedule D are gains. Qualified dividends are explained earlier under Tax Treatment of Distributions.
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You do not have to use the Schedule D Tax Worksheet.
If you have any collectibles gain, exclusion from eligible gain on qualified small business stock, or unrecaptured section 1250 gain, you will have to use the Schedule D Tax Worksheet in the Schedule D instructions to figure your tax.
The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. These lower rates are called the maximum capital gain rates.
The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than any net short-term capital loss.
The maximum capital gain rate can be 5%, 15%, 25%, or 28%. See Table 4.
If you figure your tax using the maximum capital gain rate and the regular tax computation results in a lower tax, the regular tax computation applies.
Table 4. What Is Your Maximum Capital Gain Rate?
IF your net capital gain is from ... | THEN your maximum capital gain rate is ... |
collectibles gain | 28% |
eligible gain on qualified small business stock minus the section 1202 exclusion | 28% |
unrecaptured section 1250 gain | 25% |
other gain *, and the regular tax rate that would apply is 25% or higher | 15% |
Other gain *, and the regular tax rate that would apply is lower than 25% | 5% |
If Schedule D (Form 1040), Part III, line 16, shows a loss, your allowable capital loss deduction is the smaller of:
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$3,000 ($1,500 if you are married and filing a separate return), or
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Your total net loss shown on line 16 of Schedule D.
Enter your allowable loss on line 13 of Form 1040.
Example.
Bob and Gloria sold all of their shares in a mutual fund. The sale resulted in a capital loss of $7,000. They had no other capital transactions. Their taxable income was $26,000. On their joint 2007 return, they can deduct $3,000. The unused part of the loss, $4,000 ($7,000 - $3,000), can be carried over to 2008.
If Bob and Gloria's capital loss had been $2,000, their capital loss deduction would have been $2,000. They would have no carryover.
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Your allowable capital loss deduction for the year, or
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Your taxable income increased by your allowable capital loss deduction for the year and by your deduction for personal exemptions.
You can generally deduct the expenses of producing taxable investment income. These include expenses for investment counseling and advice, legal and accounting fees, and investment newsletters. These expenses are deductible as miscellaneous itemized deductions to the extent that they exceed 2% of your adjusted gross income. See chapter 3 in Publication 550 for more information.
Interest paid on money to buy or carry investment property is also deductible, but the deduction may be limited. See Limit on Investment Interest Expense, later.
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Is not continuously offered pursuant to a public offering,
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Is not regularly traded on an established securities market, and
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Is held by fewer than 500 persons at any time during the tax year.
Example.
William received $600 in dividends from his mutual fund: exempt-interest dividends of $480 and taxable dividends of $120. In earning this income, he had a $50 expense for a newsletter on mutual funds. William divides the exempt-interest dividends by the total dividends to figure the part of the expense that is not deductible. Therefore, 80% ($480 ÷ $600) of William's expense is for exempt-interest income. He cannot deduct $40 (80% of $50) of the expense. William may claim the balance of the expense, $10, as a miscellaneous itemized deduction subject to the 2%-of-adjusted-gross- income limit. That is the part of the expense allocable to the taxable dividends.
The amount you can deduct as investment interest expense may be limited in two different ways. First, you may not deduct the interest on money you borrow to buy or carry shares in a mutual fund that distributes only exempt-interest dividends. If the fund also distributes taxable dividends, you must allocate the interest between the taxable and nontaxable income. Allocate the interest as explained under Expenses allocable to exempt-interest dividends, earlier.
Second, your deduction for investment interest expense is limited to the amount of your net investment income.
Example.
Jane, a single taxpayer, has investment income for the year of $12,000. Jane's investment expenses (other than interest expense) directly connected with the production of income were $980 after subtracting the 2% limit on miscellaneous itemized deductions. Jane incurred $12,500 of investment interest expense during the year. She had no passive activity losses. Jane figures net investment income and the limit on her investment interest expense deduction as follows:
Total investment income | $12,000 | |
Subtract: |
Investment expenses
(other than interest) |
-980 |
Net investment income | $11,020 |
For the year, Jane's investment interest expense deduction is limited to $11,020 (her net investment income). The disallowed interest expense of $1,480 ($12,500 - $11,020) can be carried forward to the following year as explained next under Carryover.
Robert and Janice Martin have the following four sources of investment income to report on their 2007 tax return. Page 1 of their Schedule D (Form 1040) is shown later. Page 2 is not illustrated.
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$1,204 gain from the sale of 200 shares of Mutual Fund S on October 10, 2007. They received Form 1099-B, and they report the sale on Schedule D (Form 1040).
Robert and Janice purchased these shares in 1993 at $10 each. They received some nondividend distributions in 1995, 1996, and 2004 that reduced their basis in the shares. In 2005 and 2006, the Martins reported undistributed capital gains that increased their basis in their shares. They received no distributions in 2007 before the sale.
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$265 of ordinary dividends, including $250 of qualified dividends, and $61 of capital gain distributions from Mutual Fund R. The Martins received Form 1099-DIV showing these amounts. They report the ordinary dividends on line 9a of Form 1040. They report the qualified dividends on line 9b of Form 1040. They do not report the ordinary dividends on Schedule B (Form 1040) because their total ordinary dividends were not over $1,500. They report the capital gain distributions on Schedule D (Form 1040) because they have other capital transactions.
Robert and Janice invested $3,800 in this fund in June 2007 and received 153.16 shares that cost $24.81 per share. They requested that all of their distributions be reinvested in more shares of the fund. On December 28, 2007, they acquired an additional 13.03 shares at $25.01 per share from their reinvested dividends.
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$101 of exempt-interest dividends from Mutual Fund X. They chose not to reinvest these exempt-interest dividends and instead received a cash payment. They received a Form 1099-INT from the fund showing this nontaxable amount, which they report on line 8b of Form 1040.
The Martins invested $2,600 in this fund in April 2005 and received 87.54 shares at $29.70 per share. They received exempt-interest dividends of $92 in 2005 and $107 in 2006.
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$237 in ordinary dividends, including $220 of qualified dividends, from 100 shares of common stock in Green Publishing Company. These were received as a cash payment and not reinvested. They received Form 1099-DIV, and they report the ordinary dividends on line 9a of Form 1040 and the qualified dividends on line 9b.
Robert and Janice bought this stock in 1993 for $10.29 per share.
Before you begin:
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1. | Enter the amount from Form 1040, line 43 | 1. | 36,505 | ||||||||||||
2. | Enter the amount from Form 1040, line 9b | 2. | 470 | ||||||||||||
3. | Are you filing Schedule D? | ||||||||||||||
Yes. | Enter the smaller of line 15 or 16 of Schedule D. If either line 15 or line 16 is a loss, enter -0- | 3. | 1,265 | ||||||||||||
No. | Enter the amount from Form 1040, line 13 | ||||||||||||||
4. | Add lines 2 and 3 | 4. | 1,735 | ||||||||||||
5. | If you are claiming investment interest expense on Form 4952, enter the amount from line 4g of that form. Otherwise, enter -0- | 5. | -0- | ||||||||||||
6. | Subtract line 5 from line 4. If zero or less, enter -0- | 6. | 1,735 | ||||||||||||
7. | Subtract line 6 from line 1. If zero or less, enter -0- | 7. | 34,770 | ||||||||||||
8. | Enter the smaller of: | ||||||||||||||
• The amount on line 1, or | |||||||||||||||
• $31,850 if single or married filing separately, | 8. | 36,505 | |||||||||||||
$63,700 if married filing jointly or qualifying widow(er),
$42,650 if head of household. |
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9. | Is the amount on line 7 equal to or more than the amount on line 8? | ||||||||||||||
Yes. | Skip lines 9 through 11; go to line 12 and check the "No" box. | ||||||||||||||
No. | Enter the amount from line 7 | 9. | 34,770 | ||||||||||||
10. | Subtract line 9 from line 8 | 10. | 1,735 | ||||||||||||
11. | Multiply line 10 by 5% (.05) | 11. | 87 | ||||||||||||
12. | Are the amounts on lines 6 and 10 the same? | ||||||||||||||
Yes. | Skip lines 12 through 15; go to line 16. | ||||||||||||||
No. | Enter the smaller of line 1 or line 6 | 12. | |||||||||||||
13. | Enter the amount from line 10 (if line 10 is blank, enter -0-) | 13. | |||||||||||||
14. | Subtract line 13 from line 12 | 14. | |||||||||||||
15. | Multiply line 14 by 15% (.15) | 15. | |||||||||||||
16. | Figure the tax on the amount on line 7. Use the Tax Table or Tax Computation Worksheet, whichever applies | 16. | 4,434 | ||||||||||||
17. | Add lines 11, 15, and 16 | 17. | 4,521 | ||||||||||||
18. | Figure the tax on the amount on line 1. Use the Tax Table or Tax Computation Worksheet, whichever applies | 18. | 4,696 | ||||||||||||
19. | Tax on all taxable income. Enter the smaller of line 17 or line 18. Also include this amount on Form 1040, line 44 | 19. | 4,521 | ||||||||||||
Mutual Fund | Acquired 1 | Adjustment to Basis Per Share | Adjusted 2 Basis Per Share | Sold or Redeemed | |||||||
Date | Number of Shares | Cost Per Share | Date | Number of Shares | |||||||
MUTUAL FUND S | 7-12-93 | 200 | 10.00 | 12-31-95 | 12-31-96 | 12-31-04 | 12-31-05 | 8-29-06 | 9.98 | 10-10-07 | 200 |
(.05) | (.02) | (.04) | .03 | .06 | |||||||
MUTUAL FUND X | 4-19-05 | 87.54 | 29.70 | ||||||||
MUTUAL FUND R | 6-12-07 | 153.16 | 24.81 | ||||||||
12-28-07 | 13.03 | 25.01 | |||||||||
1 Include share received from reinvestment of distributions. | |
2 Cost plus or minus adjustments. |
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
www.improveirs.org.
Internet. You can access the IRS website at www.irs.gov 24 hours a day, 7 days a week to:
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E-file your return. Find out about commercial tax preparation and e-file services available free to eligible taxpayers.
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Check the status of your 2007 refund. Click on Where's My Refund. Wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Have your 2007 tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund.
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Download forms, instructions, and publications.
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Order IRS products online.
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Research your tax questions online.
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Search publications online by topic or keyword.
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View Internal Revenue Bulletins (IRBs) published in the last few years.
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Figure your withholding allowances using the withholding calculator online at
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Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant.
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Sign up to receive local and national tax news by email.
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Get information on starting and operating a small business.
Phone. Many services are available by phone.
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Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. You should receive your order within 10 days.
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Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
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Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local Taxpayer Assistance Center for an appointment. To find the number, go to www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.
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TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications.
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TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.
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Refund information. To check the status of your 2007 refund, call 1-800-829-4477 and press 1 for automated refund information or call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Have your 2007 tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund.
Evaluating the quality of our telephone services. To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to listen in on or record random telephone calls. Another is to ask some callers to complete a short survey at the end of the call.
Walk-in. Many products and services are available on a walk-in basis.
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Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
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Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No appointment is necessary, but if you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. To find the number, go to www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.
Mail. You can send your order for forms, instructions, and publications to the address below. You should receive a response within 10 days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
CD/DVD for tax products. You can order Publication 1796, IRS Tax Products CD/DVD, and obtain:
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Current-year forms, instructions, and publications.
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Prior-year forms, instructions, and publications.
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Bonus: Historical Tax Products DVD - Ships with the final release.
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Tax Map: an electronic research tool and finding aid.
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Tax law frequently asked questions.
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Tax Topics from the IRS telephone response system.
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Fill-in, print, and save features for most tax forms.
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Internal Revenue Bulletins.
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Toll-free and email technical support.
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The CD which is released twice during the year.
- The first release will ship the beginning of January 2008.
- The final release will ship the beginning of March 2008.
Purchase the CD/DVD from National Technical Information Service (NTIS) at www.irs.gov/cdorders for $35 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD/DVD for $35 (plus a $5 handling fee). Price is subject to change.
CD for small businesses. Publication 3207, The Small Business Resource Guide CD for 2007, is a must for every small business owner or any taxpayer about to start a business. This year's CD includes:
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Helpful information, such as how to prepare a business plan, find financing for your business, and much more.
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All the business tax forms, instructions, and publications needed to successfully manage a business.
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Tax law changes for 2007.
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Tax Map: an electronic research tool and finding aid.
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Web links to various government agencies, business associations, and IRS organizations.
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“Rate the Product” survey—your opportunity to suggest changes for future editions.
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A site map of the CD to help you navigate the pages of the CD with ease.
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An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan, and filing taxes.
An updated version of this CD is available each year in early April. You can get a free copy by calling 1-800-829-3676 or by visiting www.irs.gov/smallbiz.
More Online Publications |