REIT and Mutual Fund Distributions

If you own shares in a mutual fund or real estate investment trust (REIT) that pays out capital gains to shareholders every year or so, these amounts are also reported on Form 8949 and Schedule D. The mutual fund company will report the total long-term gains on sales of securities during the year, and report them in Box 2a of Form 1099-DIV. Any short-term gains are included in the amount of ordinary dividends, and they are simply taxed as dividends.

Report your total capital gain distributions on Line 13 of Schedule D. You do not have to file a Schedule D if all of the following apply: the only amounts you have to report are from Box 2a of Forms 1099-DIV; none of your Forms 1099-DIV have an amount listed in Boxes 2b, 2c, or 2d; and you are not filing Form 4952 or the amount on line 4e of that form is zero. Instead, you can enter your capital gain distributions on Line 13 and check the box on that line.

In some cases, you may have undistributed capital gains to deal with, if your mutual fund or REIT reports them to you.

Tip

Note that beginning in 2013, a new 3.8 percent net investment income tax may be imposed on individuals whose modified adjusted gross income exceeds $250,000 for joint filers, $125,000 for married taxpayers filing separately, and $200,000 for others. Trusts and estates with income over a certain amount are also subject to the NII tax. Form 8960, Net Investment Income Tax� Individuals, Estates, and Trusts is attached to the tax return. For 2013, the IRS has provided taxpayers the ability to rely on more than one set of net investment income tax rules. The best choice varies by taxpayers and depends on the taxpayer's unique situation. Consult your advisor to determine which approach would be best for you.