Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by regulated investment companies (commonly called mutual funds) and real estate investment trusts (REIT). They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. Report capital gain distributions as long-term capital gains regardless of how long you owned your shares in the mutual fund or REIT.

If you receive capital gain distributions on mutual fund or REIT stock you hold 6 months or less and sell at a loss, see Loss on mutual fund or REIT stock held 6 months or less under Holding Period in chapter 15.

Undistributed capital gains of mutual funds and REITs. Some mutual funds keep their long-term capital gains and pay tax on them. You must treat your share of these gains as distributions, even though you did not actually receive them. However, they are not included on Form 1099-DIV. Instead, your share of the fund's undistributed capital gains and tax paid will be reported to you on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.

For tax years beginning after August 5, 1997, a REIT can keep its long-term capital gains and pay the tax on them, in the same way as a mutual fund. Your share of these gains and the tax paid on them will also be reported to you on Form 2439.

Report undistributed capital gains as long-term capital gains on line 11 of Schedule D (Form 1040). You take credit for the tax paid by the mutual fund or REIT by including it on line 63, Form 1040, and checking box a on that line. Attach Copy B of Form 2439 to your return, and keep Copy C for your records.

Basis adjustment. Increase your basis in your mutual fund stock, or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid.

Additional information. For more information on the treatment of distributions from mutual funds, see Publication 564.

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