Additional information on capital gains and losses can be found in Publication 550 and Publication 544, Sales and Other Asset Dispositions. Mutual funds (or other regulated investment companies) and real estate investment trusts (REITs) pay or credit capital gains distributions and capital gains distributions (also called capital gains dividends) to your account. They will be shown in box 2a of the 1099-DIV form you receive from the mutual fund or REIT. Indicate capital gains distributions as long-term capital gains, regardless of how long you have owned your shares in the mutual fund or REIT.
See capital gains distributions in the How to Report Dividend Income section, later in this chapter. If you received capital gains distributions, you must declare them directly on line 7 of Form 1040 or 1040-SR, or on line 13 of Schedule D (Form 1040), depending on your situation. If you received capital gains distributions from a mutual fund or real estate investment trust (REIT), the distributions of net capital gains realized in the short term are not treated as capital gains. Instead, they are included in Form 1099-DIV as ordinary dividends.
Report them on your tax return as ordinary dividends. Exceptions to the filing of Form 8949 and Annex D (Form 1040). You don't have to file Form 8949 or Schedule D (Form 1040) if you have no capital losses and your only capital gains are the capital gains distributions from Form (s) 1099-DIV, Box 2a. If any of the 1099-DIV forms you receive has an amount in box 2b (unrecovered profit from section 1250), box 2C (gain from section 1202), or box 2D (gain from collectible items (28%)), you are not eligible for this exception.
In addition, use the qualified tax worksheet on dividends and capital gains found in the instructions on Form 1040 or 1040-SR to calculate your tax. In general, you can use losses from passive activities only to offset income from passive activities. You can't use passive activity losses to offset your other income, such as your salaries or portfolio income. Portfolio income includes gross income from interest, dividends, annuities, or royalties that are not derived in the ordinary course of a transaction or business.
It also includes profits or losses (not derived in the ordinary course of a transaction or business) from the sale or exchange of assets (other than participation in a passive activity) that generate portfolio income or that are held for investments. This includes capital gains distributions from mutual funds (and other regulated investment companies) and real estate investment trusts. Investment income generally does not include net capital gain from the alienation of investment property (including capital gains distributions from mutual funds). However, you can choose to include all or part of your net capital gain in investment income.
If part of the amount you declare is your child's capital gains distributions, that part (listed on line 13 of Schedule D (Form 1040) or on Form 1040, is generally not counted as investment income. However, you can choose to include all or part of it in investment income, as explained above in How to Choose Net Capital Gain. The loss (after the reduction of any interest-free dividend you received, as explained below) is treated as a long-term capital loss up to the total of the capital gain distributions you received and your share in the undistributed capital gains. Any remaining loss is a short-term capital loss.
If your dividend and capital gains distributions are reinvested in new shares, the holding period for each new stock begins the day after that stock is purchased. Therefore, if you sell both the new shares and the original shares, you may have profits and losses in both the short and the long term. Capital gains distributions are not listed directly on your Form 1040; and you don't have to file Form 8949 or Schedule D (Form 1040) if you have no capital losses and your only capital gains are the capital gains distributions in box 2a of Form (s) 1099-DIV. If any 1099-DIV form you receive has an amount in box 2b (unrecovered profit from section 1250), box 2C (gain from section 1202), or box 2D (gain from collectible items (28%)), you are not eligible for this exception.
If you qualify for this exception, declare your capital gains distributions directly on line 7 of Form 1040 and check the box on that line. Also use the qualified tax worksheet on dividends and capital gains found in the instructions on Forms 1040 to calculate your tax. You don't have to file Schedule D (Form 1040) and you received capital gains distributions. See Exceptions to Filing Form 8949 and Schedule D (Form 1040), above.
You have repeatedly tried to contact the IRS, but no one has responded or the IRS has not responded by the promised date. To get approval from the IRS, you must submit a request for a letter that resolves according to the appropriate IRS revenue procedure. .
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