Capital Gain Distributions

Capital gain distributions are paid by mutual funds, regulated investment companies, and real estate investment trusts. They represent the shareholder's portion of gain from the sale of securities owned by these investment companies. There are two treatments of capital gain distributions. Both types of capital gain distributions are taxable for the year constructively received.

• Distributed capital gains are paid in cash to the shareholders or reinvested in additional shares at the shareholders' request.
• Undistributed capital gains are retained by the investment company, which pays the tax on them. These gains are reinvested automatically in additional shares and reported to the taxpayer of Form 2439 rather than on Form 1099-DIV. An individual who receives Form 2439 may have a credit to be entered on line 63, Form 1040, for tax paid by the investment company.