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In US federal tax, what is the relation and difference between capital gain distribution and capital gain?

For example, the two terms are distinct in the instructions of 1040

Exception 1. You do not have to file Form 8949 or Schedule D if both of the following apply.

  1. You have no capital losses, and your only capital gains are capital gain distributions from Form(s) 1099-DIV, box 2a (or substitute statements).

  2. None of the Form(s) 1099-DIV (or substitute statements) have an amount in box 2b (unrecaptured section 1250 gain), box 2c (section 1202 gain), or box 2d (collectibles (28%) gain).

Thanks.

Ben Miller
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Tim
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1 Answers1

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Capital gains are when you sell an asset for more than it was purchased for. This can occur when you sell a house, collectible, stocks, bonds.

A capital gain distribution is when the mutual fund, or ETF, has sold assets and now has capital gains. They then pass the gains onto the investors. These gains are either paid directly to the investors, or are used to purchase additional shares and those are credited to the investors accounts.

If you sell an asset you need to include additional information to be able to determine the capital gain, and thus the taxes.

If you are receiving a distribution of capital gains, the math and documentation was already done by the trustee. Of course when you sell shares, or withdraw funds then you will have to provide the numbers to determine if those shares have gains.

The actual taxes if any depend on the type of account: Taxable, IRA, 401K, Roth or not.

mhoran_psprep
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