Publication 564

Cat. No. 15112N Contents

Important Changes ................ 1 Department

of the Mutual Fund Important Reminders .............. 1 Treasury

Internal Introduction ..................... 2

Revenue

Service

Distributions

Tax Treatment of Distributions ....... 2

Ordinary Dividends .............. 2

Capital Gain Distributions ......... 3

For use in preparing Exempt-Interest Dividends ......... 3

Return of Capital (Nontaxable)

Distributions ............... 3 2003 Returns Reinvestment of Distributions ....... 4

How To Report ................ 4

Keeping Track of Your Basis ......... 5

Sales, Exchanges,

and Redemptions .............. 7

Identifying the Shares Sold ........ 7

Gains and Losses .............. 9

Investment Expenses .............. 10

Limit on Investment Interest

Expense .................. 11

Comprehensive Example ........... 11

How To Get Tax Help .............. 16

Index .......................... 18

Important Changes

Lower maximum tax rates on capital gain.

For sales and other dispositions of property after

May 5, the 20% maximum tax rate on net capital

gain has been lowered to 15%, and the 10% rate

has been lowered to 5%. In addition, the 8% rate

for qualified 5-year gain has been eliminated.

Instead, the new 5% rate applies to gain that

would have qualified for the 8% rate. See Capital

Gain Tax Rates, later.

Qualified dividends. Qualified dividends you

received in 2003 are taxed at the same 5% or

15% rate that applies to a net capital gain. For

details, see Qualified dividends under Ordinary

Dividends, later.

Important Reminders

Reporting dividends on your return. If you

file Form 1040A, you must attach Schedule 1 to

your return if your ordinary dividend income is

more than $1,500; if you file Form 1040, you

must attach Schedule B to your return if your

Get forms and other information ordinary dividend income is more than $1,500.

faster and easier by: Photographs of missing children. The Internal Revenue Service is a proud partner with the

National Center for Missing and Exploited Chil- Internet • www.irs.gov or FTP • ftp.irs.gov dren. Photographs of missing children selected

by the Center may appear in this publication on FAX • 703–368–9694 (from your fax machine) pages that would otherwise be blank. You can

help bring these children home by looking at the
photographs and calling 1–800–THE–LOST clude your daytime phone number, including the Certain year-end dividends received in

(1–800–843– 5678) if you recognize a child. area code, in your correspondence. January. Dividends declared and made payable by mutual funds in October, November, or

Useful Items December are considered received by shareYou may want to see: holders on December 31 of the same year even

Introduction if the dividends are actually paid during January

Publication of the following year. This publication provides federal income tax information for individual shareholders of mutual ❏ 550 Investment Income and Expenses Tax-exempt mutual fund. Distributions from

funds, including money market funds. It ex- a tax-exempt mutual fund (one that invests priplains how to report distributions paid to you by a Form (and Instructions) marily in tax-exempt securities) may consist of

mutual fund and any expenses connected with ❏ Schedule B (Form 1040) ordinary dividends, capital gain distributions, un- Interest and your investment. In addition, it explains how to Ordinary Dividends distributed capital gains, or return of capital like

report undistributed long-term capital gains. It any other mutual fund. These distributions genalso explains how to figure and report your gain ❏ Schedule D (Form 1040) Capital Gains erally are treated the same as distributions from

or loss when you sell, exchange, or redeem your and Losses a regular mutual fund.

mutual fund shares. A comprehensive example, ❏ Schedule 1 (Form 1040A) Distributions designated as exempt-interest Interest and with filled-in forms, appears at the end of the Ordinary Dividends for Form 1040A dividends are not taxable. (See Exempt-Interest

publication. Filers Dividends, later.)

Mutual fund. A mutual fund is a regulated ❏ 1099–B Proceeds from Broker and Ordinary Dividends investment company generally created by “pool- Barter Exchange Transactions

ing” funds of investors to allow them to take ❏ 1099–DIV Dividends and Distributions An ordinary dividend is a distribution by a mutual advantage of a diversity of investments and pro- fund out of its earnings and profits. Include ordi- fessional management. ❏ 2439 Notice to Shareholder of nary dividends that you receive from a mutual Undistributed Long-Term Capital Money market fund. A money market fund fund as dividend income on your individual in- Gains is a mutual fund that tries to increase current come tax return.

income available to shareholders by buying ❏ 4952 Investment Interest Expense Ordinary dividends are the most common

short-term market investments. Deduction type of dividends. They will be reported in box 1a

Money market funds pay dividends and of Form 1099–DIV or on a similar statement you See How To Get Tax Help near the end of should not be confused with bank money market receive from the mutual fund.

this publication for information about getting accounts that pay interest. these publications and forms. Qualified dividends. Many ordinary diviQualified retirement plans and IRAs. The dends you received in 2003 are also classified

rules in this publication do not apply to mutual as qualified dividends. The amount of your qualifund shares held in individual retirement ar- fied dividends will be shown in box 1b of Form

rangements (IRAs), section 401(k) plans, and Tax Treatment 1099–DIV or on a similar statement you get

other qualified retirement plans. The value of the from the mutual fund.

mutual fund shares and earnings allocated to of Distributions Qualified dividends are taxed at the same

you are included in your retirement plan assets lower rates that apply to a net capital gain. They

and stay tax free generally until the plan distrib- A distribution you receive from a mutual fund are taxed at 15% if the regular tax rate that

utes them to you. The tax rules that apply to may be an ordinary dividend, a qualified divi- would apply is 25% or higher. They are taxed at dend, a capital gain distribution, an exempt- retirement plan distributions are explained in the 5% if the regular tax rate that would apply is 10% interest dividend, or a nontaxable return of capi- following publications. or 15%.

tal. The fund will send you a Form 1099–DIV or To be a qualified dividend subject to the 5% • Publication 560, Retirement Plans for similar statement telling you the kind of distribu- or 15% rate, a dividend must meet all of the Small Business (SEP, SIMPLE, and Quali- tion you received. This section discusses the tax following requirements. fied Plans). treatment of each kind of distribution, describes

• Publication 571, Tax-Sheltered Annuity how to treat reinvested distributions, and ex- 1) The dividend must have been paid by a

Plans (403(b) Plans). plains how to report distributions on your return. U.S. corporation or a qualified foreign corporation. See chapter 1 of Publication 550 • Publication 575, Pension and Annuity In- You may be treated as having received for the definition of a qualified foreign cor- come. a distribution of capital gains even if the poration. fund does not distribute them to you. CAUTION

! • Publication 590, Individual Retirement Ar- See Undistributed capital gains under Capital 2) The dividend must not be of a type ex- rangements (IRAs). Gain Distributions. cluded by law from the definition of a quali-

• Publication 721, Tax Guide to U.S. Civil fied dividend. See chapter 1 of Publication

Community property states. 550 for a list of these types of dividends. Service Retirement Benefits. If you are married and receive a distribution that is community 3) You must meet the holding period require- income, one-half of the distribution is generally Comments and suggestions. We welcome ment (discussed next). considered to be received by each spouse. If your comments about this publication and your you file separate returns, you must each report suggestions for future editions. Holding period. You must have held the

one-half of any taxable distribution. Get Publica- You can e-mail us at *taxforms@irs.gov. stock for more than 60 days during the 121-day tion 555, Community Property, for more informa- Please put “Publications Comment” on the sub- period that begins 60 days before the ex-divi- tion on community income. dend date. The ex-dividend date is the first ject line. If the distribution is not considered commu- You can write to us at the following address: date following the declaration of a dividend on nity income under state law and you and your which the buyer of a stock will not receive the spouse file separate returns, each of you must next dividend payment. Instead, the seller will Internal Revenue Service report your separate taxable distributions. get the dividend. Individual Forms and Publications Branch

SE:W:CAR:MP:T:I When counting the number of days you held Share certificate in two or more names. If

1111 Constitution Ave. NW the stock, include the day you disposed of the two or more persons, such as you and your Washington, DC 20224 stock, but not the day you acquired it. spouse, hold shares as joint tenants, tenants by

the entirety, or tenants in common, distributions More information. See chapter 1 of PubliWe respond to many letters by telephone. on those shares are considered received by cation 550 for more information about qualified

Therefore, it would be helpful if you would in- each of you to the extent provided by local law. dividends.

Page 2
Table 1A. Reporting Mutual Fund Distributions on Form 1040

IF you receive . . . THEN report the distribution on . . .

ordinary dividends

(Form 1099-DIV, box 1a)

capital gain distributions

(Form 1099-DIV, boxes 2a–2f)

return of capital (nontaxable) distributions

(Form 1099-DIV, box 3)

undistributed capital gains (Form

2439, boxes 1a–1f)

● your total ordinary dividends received are

more than $1,500, or

you have to file Schedule D

you have unrecaptured section 1250

gain (box 2d)

you have total undistributed capital

gains (box 1a)

you have unrecaptured section 1250

gain (box 1d)

you have Section 1202 gain (box 1e)

Schedule B, line 5

Schedule D, line 19

(See Schedule D instructions)

Schedule D, line 11, column (f)

Schedule D, line 19

(See Schedule D instructions)

see Schedule D instructions

your total ordinary dividends received are

$1,500 or less

Form 1040, line 9a

● you received ordinary dividends as a

nominee

Schedule D, line 13, column (f)

you have Section 1202 gain (box 2e) see Schedule D instructions

exempt-interest dividends (not shown on

Form 1099-DIV)

generally, not reported1

Form 1040, line 8b

1

Report any amount in excess of your basis in your mutual fund shares on Schedule D, line 8, column (f) and column (g), if applicable (or on Schedule D, line 1, if you

held your mutual fund shares 1 year or less).

you do not have to file Schedule D Form 1040, line 13a, and Qualified Dividends

and Capital Gain Tax Worksheet, line 3

AND . . .

Schedule D, line 35 (See Schedule D

instructions) you have qualified 5-year gain (box 2c)

you have qualified 5-year gain (box 1c) Schedule D, line 35 (See Schedule D

instructions)

qualified dividends

(Form 1099-DIV, box 1 (b))

Form 1040, line 9b and Schedule D, line

23 (or Schedule D Tax Worksheet, line 2

you have Collectibles (28% rate) gain (box 2f) see Schedule D instructions

you have Collectibles (28% rate) gain (box 1f) see Schedule D instructions

you have to file Schedule D

you do not have to file Schedule D Form 1040, line 9b, and Qualified Dividends

and Capital Gain Tax Worksheet, line 2

you have post-May 5 gain (box 2b) and

have to file Schedule D

you have post-May 5 gain (box 2b) and do

not have to file Schedule D

Schedule D, line 13, column (g)

Form 1040, line 13b, and Qualified Dividends and

Capital Gain Tax Worksheet, lines 11 and 19

you have post-May 5 gain (box 1b) Schedule D, line 11, column (g)

Capital Gain Distributions fund in box 2. Attach Copy B of Form 2439 to Exempt-interest dividends are not shown on

your return. Form 1099–DIV.

These distributions are paid by mutual funds Increase to basis. When you report undis- Information reporting requirement. Al- from their net realized long-term capital gains. tributed capital gains from a mutual fund, you though exempt-interest dividends are not tax- The Form 1099–DIV (box 2a) you receive or the must increase your basis in the shares. You able, you must report them on your tax return if fund’s statement will tell you the amount you are

must keep Copy C of Form 2439 to show this you are required to file. This is an information to report as a capital gain distribution. Capital reporting requirement and does not convert gain distributions are taxed as long-term capital increase. See Adjusted Basis, later.

tax-exempt interest to taxable interest. Also, this gains regardless of how long you have owned income is generally a “tax preference item” and the shares in the mutual fund. Exempt-Interest Dividends may be subject to the alternative minimum tax. If

Undistributed capital gains. Mutual funds you receive exempt-interest dividends, you A mutual fund may pay exempt-interest divi- may keep some of their long-term capital gains should get Form 6251, Alternative Minimum dends to its shareholders if it meets certain re- and pay taxes on those undistributed amounts. Tax—Individuals, for more information.

You must report your share of these amounts as quirements. These dividends are paid from

long-term capital gains, even though you did not tax-exempt interest earned by the fund. Since Return of Capital actually receive a distribution. You can take a the exempt-interest dividends keep their taxcredit for any tax paid because you are consid- exempt character, do not include them in in- (Nontaxable) Distributions

ered to have paid it. come. However, you may need to report them A distribution that is not out of earnings and on your return. See Information reporting re- Form 2439. The fund will send you Form profits is a return of your investment, or capital,

2439, instead of Form 1099–DIV, showing your in the mutual fund and is shown in box 3 of Form quirement, next. The mutual fund will send you a

share of the undistributed long-term capital 1099–DIV. These return of capital distributions statement within 60 days after the close of its tax

gains in box 1a and any tax paid by the mutual year showing your exempt-interest dividends. are generally not taxed and are sometimes

Page 3
Table 1B. Reporting Mutual Fund Distributions on Form 1040A

IF you receive . . . THEN report the distribution on . . .

ordinary dividends

(Form 1099-DIV, box 1a)

capital gain distributions

(Form 1099-DIV, boxes 2a–2f)

return of capital (nontaxable) distributions

(Form 1099-DIV, box 3)

undistributed capital gains

(Form 2439, boxes 1a–1f)

● your total ordinary dividends received are

more than $1,500, or

you have to file Form 1040

any Form 1099-DIV has an amount in

box 2c, 2d, 2e, or 2f

Schedule 1, line 5

your total ordinary dividends received are

$1,500 or less

Form 1040A, line 9a

● you received ordinary dividends as a

nominee

Form 1040; see Table 1A

exempt-interest dividends (not shown on

Form 1099-DIV)

generally, not reported; see Table 1A

Form 1040A, line 8b

you do not have to file Form 1040 Form 1040A, line 10, and Qualified Dividends 

and Capital Gain Tax Worksheet, line 2

AND . . .

Form 1040; see Table 1A

Form 1040; see Table 1A

qualified dividends

(Form 1099-DIV, box 1b)

Form 1040A, line 9b, and Qualified Dividends 

and Capital Gain Tax Worksheet, line 2

you have post-May 5 gain (box 2b) Form 1040A, line 10b, and Qualified Dividends 

and Capital Gain Tax Worksheet, lines 9 and 17

called tax-free dividends or nontaxable distribu- earlier. See Keeping Track of Your Basis, later, 1) None of the Forms 1099–DIV (or substi- tions. to determine the basis of the additional shares.

tute statements) you received have an A return of capital distribution reduces your amount in box 2c, 2d, 2e, or 2f. basis in the shares. Basis is explained under How To Report

Keeping Track of Your Basis, later. Your basis 2) You do not have to file Form 1040 for any

cannot be reduced below zero. If your basis is You must report mutual fund distributions on other reason. (For example, you must not

zero, you must report the return of capital distri- Form 1040 or Form 1040A. You cannot report have any other capital gains or any capital

bution on your tax return as a capital gain. Re- mutual fund distributions on Form 1040EZ. losses.) port this capital gain on Schedule D (Form You cannot use Form 1040A and must use If you can use Form 1040A to report your 1040). Whether it is a long-term or short-term Form 1040 in either of the following situations.

capital gain depends on how long you held the capital gain distributions, report any post-May 5

shares. • You received a return of capital distribu- capital gain distributions on line 10b. Use the

tion that must be reported as a capital gain Qualified Dividends and Capital Gain Tax WorkExample. You bought shares in a mutual because it is more than your basis in your sheet in the Form 1040A instructions to figure

fund in 1999 for $12 a share. In 2000, you mutual fund shares. your tax.

received a return of capital distribution of $5 a • You must report an undistributed capital share. You reduced your basis in each share by gain. Form 1040. If you file Form 1040, report your

$5 to an adjusted basis of $7. In 2001, you exempt-interest dividends on line 8b. Report

received a return of capital distribution of $1 per your ordinary dividend distributions on line 9a Form 1040A. If you file Form 1040A, report share and further reduced your basis in each and your qualified dividend distributions on line your exempt-interest dividends on line 8b. Re- share to $6. In 2002, you received a return of 9b. If the total of the ordinary dividends you port your ordinary dividend distributions on line capital distribution of $2 per share. Your basis received is more than $1,500 or you received was reduced to $4. In 2003, the return of capital 9a and your qualified dividend distributions on ordinary dividends as a nominee, first report the line 9b. If the total of the ordinary dividends you distribution from the mutual fund was $5 a share. ordinary dividends in Part II of Schedule B, on received is more than $1,500 or you received You reduce your basis in each share to zero and line 5. Report the total from line 6 of that sched- ordinary dividends as a nominee, first report the report the excess ($1 per share) as a long-term ule on line 9a of Form 1040. Attach Schedule B ordinary dividends in Part II of Schedule 1, on capital gain on Schedule D. to your return. line 5. Report the total from line 6 of that schedule on line 9a of Form 1040A. Attach Schedule 1 If you reported qualified dividends on line 9b, Reinvestment to your return. you must figure your tax by completing either

of Distributions Schedule D (Form 1040) or the Qualified Divi- If you reported qualified dividends on line 9b,

use the Qualified Dividends and Capital Gain dends and Capital Gain Tax Worksheet in the

Most mutual funds permit shareholders to auto- Tax Worksheet Form 1040 instructions. in the Form 1040A instructions matically reinvest distributions in more shares in to figure your tax. the fund, instead of receiving cash. You must Do not include capital gain distributions

as dividend income on Form 1040 or report the reinvested amounts the same way as Do not include capital gain distributions

you would report them if you received them in as dividend income on Form 1040A or Schedule B. CAUTION

!

cash. This means that reinvested ordinary divi- Schedule 1. CAUTION

!

dends and capital gain distributions generally Capital gain distributions. If you received

must be reported as income. Reinvested Capital gain distributions. If you received capital gain distributions, you report them either

exempt-interest dividends generally are not re- capital gain distributions, you may have to file directly on Form 1040, line 13a or on Schedule

ported as income. Reinvested return of capital Form 1040. But you can report capital gain distri- D, line 13, depending on your situation. Report

distributions are reported as explained under butions on line 10a of Form 1040A, instead of on them on Schedule D, line 13, unless all of the

Return of Capital (Nontaxable) Distributions, Form 1040, if both of the following are true. following are true.

Page 4
information on claiming a foreign tax deduction new shares (unless all three conditions above 1) The only amounts you would have to re- or credit, get Publication 514, Foreign Tax Credit also apply to the purchase of the new shares). port on Schedule D are capital gain distri- for Individuals.

butions from box 2a of Form 1099–DIV (or Reinvestment right. This is the right to acquire mutual fund shares in the same or another similar statement) and post-May 5 capital

gain distributions from box 2b. mutual fund without paying a fee or load charge,

or by paying a reduced fee or load charge. 2) You do not have an amount in box 2c, 2d, Keeping Track

2e, or 2f of any Form 1099–DIV (or similar of Your Basis Shares Acquired by statement). Reinvestment

3) You are not filing Form 4952 or, if the You should keep track of your basis in mutual amount on line 4g of that form includes fund shares because you need the basis to The original cost basis of mutual fund shares

any qualified dividends, it also includes all figure any gain or loss on the shares when you you acquire by reinvesting your distributions is

of your net capital gain from the disposition sell, exchange, or redeem them. the amount of the distributions used to purchase

of property held for investment. each full or fractional share. This rule applies Original basis. As explained in the following even if the distribution is an exempt-interest divi- If all of the above statements are true, report paragraphs, original basis depends on how you dend that you do not report as income. your capital gain distributions directly on line 13a acquired your shares. of Form 1040 and check the box on that line. When you acquire shares through reinReport any post-May 5 capital gain distributions Adjusted basis. As described later under Ad- vestment, keep the statements that

on line 13b. Also, use the Qualified Dividends justed Basis, your original basis is adjusted (in- show each date, amount, and number RECORDS

and Capital Gain Tax Worksheet in the Form creased or decreased) by certain events. You of full or fractional shares purchased. Keep track

1040 instructions to figure your tax. must keep accurate records of all events that of any adjustments to basis of the shares as they

Undistributed capital gains. affect basis so you can figure the proper amount occur. To report un- of gain or loss. distributed capital gains, you must complete Generally, you must know the basis Schedule D and attach it to your return. Report Shares Acquired by per share to compute gain or loss these gains on Schedule D, line 11, and attach when you dispose of the shares. This is

TIP

Copy B of Form 2439 to your return. Report the Purchase explained under Identifying the Shares Sold, tax paid by the mutual fund on these gains on later. Form 1040, line 67, and check box a on that line. The original basis of mutual fund shares you

bought is usually their cost or purchase price.

Tables 1A and 1B. See Tables 1A and 1B for The purchase price usually includes any com- Shares Acquired by Gift more information on where to report your mutual missions or load charges paid for the purchase.

fund distributions on Form 1040 or Form 1040A. To determine your original basis of mutual fund

Example. You bought 100 shares of Fund A shares you acquired by gift, you must know: Nominees. If you received a Form 1099–DIV for $10 a share. You paid a $50 commission to or Form 2439 as a nominee (that is, it includes • The donor’s adjusted basis, the broker for the purchase. Your cost basis for amounts that actually belong to someone else, each share is $10.50 ($1,050 ÷ 100). • The date of the gift, other than your spouse), you must file a Form

1099–DIV or Form 2439 with the Internal When you buy or sell shares in a fund, • The fair market value (the last quoted pubRevenue Service and give the actual owner a keep the confirmation statements you lic redemption price) of the shares at the

receive. The statements show the time of the gift, and RECORDS copy. See the instructions for Forms 1099 or price you paid for the shares when you bought Form 2439 for details. • Any gift tax paid on the gift of the shares. them and the price you received for the shares If you received an ordinary dividend distribu- when you disposed of them. The information tion as a nominee, report it on line 5 of Schedule

B (Form 1040) or Schedule 1 (Form 1040A). from the confirmation statement when you pur- Fair market value less than donor’s adjusted

Under your last entry on line 5, enter a subtotal chased the shares will help you figure your basis basis. If the fair market value (FMV) of the

of all ordinary dividends listed. Below this sub- in the fund. shares at the time of the gift was less than the

adjusted basis to the donor at the time of the gift, total, enter “Nominee Distribution” and show the Commissions and load charges. The fees total ordinary dividends you received as a nomi- your basis for gain on their disposition is the

nee. Subtract this amount from the subtotal and and charges you pay to acquire or redeem donor’s adjusted basis. Your basis for loss is the

enter the result on line 6. shares of a mutual fund are not deductible. You FMV of the shares at the time of the gift. In this can usually add acquisition fees and charges to situation, it is possible to sell the shares at If you received a capital gain distribution or your cost of the shares and thereby increase were allocated an undistributed capital gain as a neither a gain nor a loss because of the basis your basis. A fee paid to redeem the shares is nominee, report only the amount that belongs to you have to use. usually a reduction in the redemption price you on line 10a of Form 1040A, line 13a of Form

1040, or Schedule D (Form 1040), whichever is (sales price). Example. You are given mutual fund shares

appropriate. Attach a statement to your return You cannot add your entire acquisition fee or with an adjusted basis of $10,000 at the time of load charge to the cost of the mutual fund shares showing the full amount you received or were the gift. The FMV of the shares at the time of the acquired if all of the following conditions apply. allocated and the amount you received or were gift is $9,000. You later sell the shares for

allocated as a nominee. $9,500. The basis for figuring a gain is $10,000, 1) You get a reinvestment right because of so there is no gain. There also is no loss, since the purchase of the shares or the payment Foreign tax deduction or credit. Some mu- the basis for figuring a loss is $9,000. In this of the fee or charge. tual funds invest in foreign securities or other situation, you have neither a gain nor a loss.

instruments. Your mutual fund may choose to 2) You dispose of the shares within 90 days

allow you to claim a deduction or credit for the of the purchase date. Fair market value equal to or more than

taxes it paid to a foreign country or U.S. posses- donor’s adjusted basis. If the FMV of the

3) You acquire new shares in the same mu- sion. The fund will notify you if this applies to shares at the time of the gift was equal to or tual fund or another mutual fund, for which you. The notice will include your share of the more than the donor’s adjusted basis at the time the fee or charge is reduced or waived foreign taxes paid to each country or possession of the gift, your basis is the donor’s adjusted because of the reinvestment right you got and the part of the dividend derived from basis at the time of the gift, plus all or part of any when you acquired the original shares. sources in each country or possession. gift tax paid on the gift, depending on the date of

You may be able to claim a credit for income The amount of the original fee or charge in the gift.

tax paid to a foreign country. However, it may be excess of the reduction in (3) is added to the For information on figuring the amount of gift

to your benefit to treat the tax as an itemized cost of the original shares. The rest of the origi- tax to add to your basis, see Property Received

deduction on Schedule A (Form 1040). For more nal fee or charge is added to the cost basis of the as a Gift in Publication 551, Basis of Assets.

Page 5
Shares Acquired by your spouse gave the decedent within the undistributed capital gain you include in income

1-year period ending on the date of the and the tax considered paid by you on that Inheritance decedent’s death if, on the date of the gift, the income.

shares were appreciated property The mutual fund reports the amount of your . In this situ- If you inherited shares in a mutual fund, your

original basis is generally the fair market value ation, the basis of the inherited shares is the undistributed capital gain in box 1a of Form

2439. You should keep Copy C of all Forms (FMV) (the last quoted public redemption price) decedent’s adjusted basis in them immediately 2439 to show increases in the basis of your on the date of the decedent’s death, or the before his or her death, rather than their FMV. shares. alternate valuation date if chosen for estate tax This basis rule also applies if the decedent’s

purposes. estate (or a trust of which the decedent was the Reduction of basis. You must reduce your

grantor) sells the shares instead of distributing basis in your shares by any return of capital Community property states. In community distributions that you receive from the fund. them to you, and you are entitled to the pro- property states, you and your spouse generally ceeds. The mutual fund reports the amount of any are considered to each own half the estate (ex- return of capital distributions in box 3 of Form cluding separate property). If one spouse dies Appreciated property. Appreciated prop- 1099–DIV. You should keep the form to show and at least half of the community interest is erty is any property (including mutual fund the decrease in the basis of your shares. includible in the decedent’s gross estate shares) whose FMV is more than its adjusted No reduction of basis. You do not reduce (whether or not the estate is required to file a basis.

your basis for distributions from the fund that are return), the FMV of the community property at Exceptions. This basis rule does not apply exempt-interest dividends. the date of death becomes the basis of both

if the decedent died before 1982 or you gave the halves of the property. Table 2. This is a worksheet you can shares to the decedent before August 14, 1981. For example, if the FMV of the entire commu- use to keep track of the adjusted basis

nity interest in a mutual fund is $100,000, the RECORDS of your mutual fund shares. Enter the

basis of the surviving spouse’s half of the shares Adjusted Basis cost per share when you acquire new shares

is $50,000. The basis of the heirs’ half of the and any adjustments to their basis when the After you acquire mutual fund shares, you may shares also is $50,000. adjustment occurs. This worksheet will help you need to make adjustments to your basis. The In determining the basis of assets acquired figure the adjusted basis when you sell or re- adjusted basis of your shares is your original from a decedent, property held in joint tenancy is deem shares.

basis (defined earlier), increased or reduced as community property if its status was community described here. property under state law.

Shares you gave the decedent. A different Addition to basis. Increase the basis in your

basis rule applies to inherited shares that you or shares by the difference between the amount of

Table 2. Mutual Fund Record

Acquired1 Sold or redeemed

Adjusted2

Mutual Fund Adjustment to Basis Per Share Basis Per Number Cost Number

Date of Per Share Date of

Shares Share Shares

1 Include share received from reinvestment of distributions.

2 Cost plus or minus adjustments.

Page 6
will use his or her social security number as the shares sold, compared with the use of the

Sales, Exchanges, TIN. single-category method to figure average basis

If you do not provide your TIN, your broker is (discussed next).

and Redemptions required to withhold tax on the gross proceeds of

a transaction. For 2004, the withholding rate is

When you sell or exchange your mutual fund 28%. In addition, you may be penalized. Average Basis

shares, or if they are redeemed (a redemption), You can figure your gain or loss using an aver- you will generally have a taxable gain or a de- Identifying the Shares Sold age basis only if you acquired the shares at ductible loss. This also applies to shares of a various times and prices, and you left the shares tax-exempt mutual fund. Sales, exchanges, and To figure your gain or loss when you dispose of on deposit in an account handled by a custodian redemptions are all treated as sales of capital mutual fund shares, you need to determine or agent who acquires or redeems those shares. assets. The amount of the gain or loss is the which shares were sold and the basis of those

To figure average basis, you can use one of difference between your adjusted basis (defined shares. If your shares in a mutual fund were the following methods. earlier) in the shares and the amount you realize acquired all on the same day and for the same

from the sale, exchange, or redemption. This is price, figuring their basis is not difficult. How- • Single-category method.

explained further under Gains and Losses, later. ever, shares are generally acquired at various • Double-category method. times, in various quantities, and at various Sale. In general, a sale is a transfer of shares prices. Therefore, figuring your basis can be for money only. Once you elect to use an average basis, you more difficult. You can choose to use either a must continue to use it for all accounts in the Exchange. An exchange is a transfer of cost basis or an average basis to figure your same fund. (You must also continue to use the shares in return for other shares. gain or loss. same method.) However, you may use the cost

Redemption. A redemption occurs when a basis (or a different method of figuring the averfund reacquires its shares from you in exchange Cost Basis age basis) for shares in other funds, even those

for money or other property. within the same family of funds.

Recordkeeping. You can figure your gain or loss using a cost When there is a sale,

basis only if you did not previously use an aver- Example. You own two accounts that hold exchange, or redemption of your age basis for a sale, exchange, or redemption of shares of the income fund issued by Company RECORDS shares in a fund, keep the confirmation other shares in the same mutual fund. A. You also own 100 shares of the growth fund statement you receive. The statement shows To figure cost basis, you can choose one of issued by Company A. If you elect to use aver- the price you received for the shares and other the following methods. age basis for the first account of the income information you need to report gain or loss on fund, you must use average basis for the second your return. • Specific share identification. account. However, you may use cost basis for

Exchange of shares in one mutual fund for • First-in first-out (FIFO). the growth fund.

shares in another mutual fund. Any ex- You may be able to find the average change of shares in one fund for shares in an- Specific share identification. If you ade- basis of your shares from information other fund is a taxable exchange. This is true quately identify the shares you sold, you can use provided by the fund.

TIP

even if you exchange shares in one fund for the adjusted basis of those particular shares to shares in another fund within the same family of figure your gain or loss. Single-category method. Under the funds. Report any gain or loss on the shares you You will adequately identify your mutual fund single-category method, you find the average gave up as a capital gain or loss in the year in shares, even if you bought the shares in different basis of all shares owned at the time of each

which the exchange occurs. Usually, you can lots at various prices and times, if you: disposition, regardless of how long you owned add any service charge or fee paid in connection them. Include shares acquired with reinvested with an exchange to the cost of the shares ac- 1) Specify to your broker or other agent the dividends or capital gain distributions. quired. For an exception, see Commissions and particular shares to be sold or transferred Table 3 illustrates the use of the single-cate- load charges under Shares Acquired by at the time of the sale or transfer, and gory method to figure the average basis of Purchase, earlier. shares sold, compared with the use of the FIFO 2) Receive confirmation in writing from your Information returns. Mutual funds and bro- method to figure cost basis (discussed earlier). broker or other agent within a reasonable kers must report proceeds from sales, ex- Even though you include all unsold shares of time of your specification of the particular changes, or redemptions to the Internal a fund in a single category to compute average shares sold or transferred.

Revenue Service. They must give each cus- basis, you may have both short-term and

tomer a written statement with that information You continue to have the burden of proving long-term gains or losses when you sell these

by January 31 of the year following the calendar your basis in the specified shares at the time of shares. To determine your holding period, the

year the transaction occurred. Form 1099–B, or sale or transfer. shares disposed of are considered to be those

a substitute, may be used for this purpose. acquired first. First-in first-out (FIFO). If your shares were Report your sales shown on Form(s) acquired at different times or at different prices 1099–B (or substitute) on Schedule D (Form Example. You bought 400 shares in the and you cannot identify which shares you sold, 1040) along with your other gains and losses. If LJO Mutual Fund: 200 shares on May 15, 2002, use the basis of the shares you acquired first as and 200 shares on May 15, 2003. On November the total of the sales price amounts reported on the basis of the shares sold. In other words, the

Form(s) 1099–B in box 2 is more 11, 2003, you sold 300 shares. The basis of all than the total oldest shares you own are considered sold first. you report on lines 3 and 10 of Schedule D, 300 shares sold is the same, but you held 200 You should keep a separate record of each attach a statement to your return explaining the shares for more than 1 year, so your gain or loss purchase and any dispositions of the shares difference. on those shares is long-term. You held 100 until all shares purchased at the same time have shares for 1 year or less, so your gain or loss on been disposed of completely. Taxpayer identification number. You those shares is short-term.

must give the broker your correct taxpayer iden- Table 3 (on the next page) illustrates the use

of the FIFO method to figure the cost basis of tification number (TIN). Generally, an individual

Page 7
Table 3. Example of How To Figure Basis of Shares Sold Example 3. The facts are the same as in

Example 1, except that you bought an additional

This is an example showing two different ways to figure basis. It compares the cost basis using 150 shares at $14 a share on September 19,

the FIFO method with the average basis using the single-category method. 2003, and then sold 50 shares on December 16,

2003. The total adjusted basis of all the shares Date Action Share Price No. of Shares Total Shares you owned just before the sale is $4,500, figured Owned as follows.

02/05/02 Invest $4,000 $25 160 160

1) Basis of remaining shares ($16 x 08/06/02 Invest $4,800 $20 240 400 150) ................... $2,400

2) Cost of shares acquired 9/19/03 12/17/02 Reinvest $300 ($14 x 150) ............... $2,100 dividend $30 10 410 3) Total adjusted basis of all shares

09/30/03 Sell 210 shares $32 210 200 owned ($2,400 + $2,100) ..... $4,500

for $6,720

The basis of the shares sold is $750 ($15 a

share), figured as follows. COST BASIS To figure the basis of the 210 shares sold on 9/30/03, use the share

(FIFO) price of the first 210 shares you bought, namely the 160 shares you 1) Enter the total adjusted basis of all purchased on 2/5/02 and 50 of those purchased on 8/6/02. the shares you owned in the fund $4,000 (cost of 160 shares on 2/5/02) just before the sale. (If you made

+ $1,000 (cost of 50 shares on 8/6/02) an earlier sale of shares in this

Basis = $5,000 fund, add the adjusted basis of any

shares you still owned after the

last sale and the adjusted basis of AVERAGE BASIS To figure the basis of the 210 shares sold on 09/30/03, use the any shares you acquired after that (single-category) average basis of all 410 shares owned on 9/30/03. sale.) .................... $4,500

$9,100 (cost of 410 shares) 2) Enter the total number of shares ÷ 410 (number of shares) you owned in the fund just before $22.20 (average basis per share) the sale. . . . . . . . . . . . . . . . . . . 300

$22.20 3) Divide the amount on line 1 by the

amount on line 2. This is your × 210

average basis per share. . . . . . . $ 15 Basis = $4,662

4) Enter the number of shares you

sold. . . . . . . . . . . . . . . . . . . . . 50

How to figure the basis of shares sold. To 1) Enter the total adjusted basis of all 5) Multiply the amount on line 3 by figure the basis of shares you sell, use the steps the shares you owned in the fund the amount on line 4. This is the

in the following worksheet. just before the sale. (If you made basis of the shares you sold. . . $ 750 an earlier sale of shares in this

1) Enter the total adjusted basis of all fund, add the adjusted basis of any

shares you still owned after the Double-category method. In the double-cat- the shares you owned in the fund last sale and the adjusted basis of egory method, all shares in an account at the just before the sale. (If you made an

earlier sale of shares in this fund, any shares you acquired after that time of each disposition are divided into two

add the adjusted basis of any sale.) .................... $4,800 categories: short-term and long-term. Shares

shares you still owned after the last held 1 year or less are short-term. Shares held 2) Enter the total number of shares sale and the adjusted basis of any longer than 1 year are long-term. you owned in the fund just before shares you acquired after that sale.) $ The basis of each share in a category is the the sale. . . . . . . . . . . . . . . . . . . 300

average basis for that category. This is the total 2) Enter the total number of shares 3) Divide the amount on line 1 by the remaining basis of all shares in that category at you owned in the fund just before amount on line 2. This is your the time of disposition divided by the total shares the sale. ................... average basis per share. . . . . . . $ 16 in the category at that time. To use this method, 3) Divide the amount on line 1 by the 4) Enter the number of shares you you specify, to the custodian or agent handling amount on line 2. This is your sold. . . . . . . . . . . . . . . . . . . . . 150 your account, from which category the shares average basis per share. .......$ are to be sold or transferred. The custodian or 5) Multiply the amount on line 3 by 4) Enter the number of shares you agent must confirm in writing your specifica- the amount on line 4. This is the

sold. ..................... tion. If you do not specify or receive confirma- basis of the shares you sold. . . $2,400 tion, you must first charge the shares sold 5) Multiply the amount on line 3 by the against the long-term category and then charge amount on line 4. This is the basis Remaining shares. The average basis of any remaining shares sold against the of the shares you sold. ........$ the shares you still hold after a sale of some of short-term category. your shares is the same as the average basis of

Example 1. You bought 300 shares in the the shares sold. The next time you make a sale, Changing categories. After you have held LJP Mutual Fund: 100 shares in 2000 for $1,000 your average basis will still be the same, unless a mutual fund share for more than 1 year, you ($10 per share); 100 shares in 2001 for $1,200 you have acquired additional shares (or have must transfer that share from the short-term

($12 per share); and 100 shares in 2002 for made a subsequent adjustment to basis). category to the long-term category. The basis of $2,600 ($26 per share). Thus, the total cost of a transferred share is its actual cost or other

your shares was $4,800 ($1,000 + $1,200 + Example 2. The facts are the same as in basis to you unless some of the shares in the $2,600). On May 16, 2003, you sold 150 shares. Example 1, except that you sold an additional 50 short-term category have been disposed of. In The basis of the shares you sold is $2,400 ($16 shares on December 15, 2003. You do not need that case, the basis of a transferred share is the

per share), figured as follows. to recompute the average basis of the 150 average basis of the undisposed shares at the shares you owned at that time because you time of the most recent disposition from this

acquired or sold no shares, and had no other category. adjustments to basis, since the last sale. Your

basis is the $16 per share figured earlier. Making the choice. You choose to use the

average basis of mutual fund shares by clearly

showing on your income tax return, for each

Page 8
year the choice applies, that you used an aver- price less commissions was reported to IRS, held the shares for more than 1 year, regardless

age basis in reporting gain or loss from the sale enter the net amount in column (d) of Schedule of how long you actually held them. Report the

or transfer of the shares. You must specify D and do not increase your basis in column (e) sale of inherited mutual fund shares on line 8 of

whether you used the single-category method or by the sales commission. Schedule D and enter “INHERITED” in column

the double-category method in determining av- (b) instead of the date you acquired the shares.

erage basis. This choice is effective until you get Example 1. You sold 100 shares of Fund

permission from the IRS to revoke it. HIJ for $2,500. You paid a $75 commission to Reinvested distributions. If your dividends the broker for handling the sale. Your Form and capital gain distributions are reinvested in Shares received as gift. If your account 1099–B shows that the net sales proceeds, includes shares that you received by gift, and new shares, the holding period of each new $2,425 ($2,500 − $75), were reported to the IRS. share begins the day after that share was pur- the fair market value of the shares at the time of Report $2,425 in column (d) of Schedule D. the gift was not more than the donor’s basis, chased. Therefore, if you sell both the new

special rules apply. You cannot choose to use shares and the original shares, you might have Example 2. You sold 200 shares of Fund both short-term and long-term gains and losses. the average basis for the account unless you KLM for $10,000. You paid a $100 commission submit a statement with your initial choice. It at the time of the sale. You bought the shares for must state that the basis used in figuring the Certain short-term losses. Special rules may $5,000. The broker reported the gross proceeds average basis of the gift shares will be the FMV apply if you have a short-term loss on the sale of to IRS on Form 1099–B, so you enter $10,000 at the time of the gift. This statement applies to shares on which you received an exempt-inter- in column (d) of Schedule D and increase your gift shares received before and after making the est dividend or a capital gain distribution. basis in column (e) to $5,100. choice, as long as the choice to use the average Exempt-interest dividends before basis is in effect. Note. Whether you use Schedule D’s line 1 short-term loss. If you received exempt-inter-

(for a short-term gain or loss) or line 8 (for a est dividends on mutual fund shares that you Gains and Losses long-term gain or loss) depends on how long you held for 6 months or less and sold at a loss, you

held the shares, discussed next. may claim only the part of the loss that is more You figure gain or loss on the disposition of your than the exempt-interest dividends. On Sched- shares by comparing the amount you realize ule D, column (d), increase the sales price by the with the adjusted basis of your shares. If the Holding Period amount of exempt-interest dividends. Report the amount you realize is more than the adjusted loss as a short-term capital loss. basis of the shares, you have a gain. If the When you dispose of your mutual fund shares,

amount you realize is less than the adjusted you must determine your holding period. Your Example. On January 8, 2003, you bought basis of the shares, you have a loss. holding period determines whether the gain or a mutual fund share for $40. On February 4, loss is a short-term capital gain or loss or a Amount you realize. The amount you realize 2003, the mutual fund paid a $5 dividend from long-term capital gain or loss. tax-exempt interest, which is not taxable to you. from a disposition of your shares is the money

Short-term gain or loss. On February 12, 2003, you sold the share for and value of any property you receive for the If you hold the

shares disposed of, minus your expenses of shares for 1 year or less, your gain or loss will be $34. If it were not for the tax-exempt dividend,

sale (such as redemption fees, sales commis- a short-term gain or loss. your loss would be $6 ($40 − $34). However,

sions, sales charges, or exit fees). you must increase the sales price from $34 to

Long-term gain or loss. If you hold the $39 (to account for the $5 portion of the loss that

Adjusted basis. Adjusted basis is explained shares for more than 1 year, your gain or loss is not deductible). You can deduct only $1 as a

under Keeping Track of Your Basis, earlier. Also will be a long-term gain or loss. short-term capital loss.

see the explanations of cost basis and average Determining period held. Determine your Capital gain distribution before short-term basis under Identifying the Shares Sold, earlier.

holding period by using the trade dates of your loss. Generally, if you received capital gain

Wash sales. If you sell mutual fund shares at purchases and your sales. The trade date is the distributions (or had to report undistributed capia loss and within 30 days before or after the date on which you contract to buy or sell shares. tal gains) on mutual fund shares that you held for

sale you buy, acquire in a taxable exchange, or Most mutual funds will show the trade dates on 6 months or less and sold at a loss, report only

acquire a contract or option to buy substantially confirmation statements showing your the part of the loss that is more than the capital

identical shares, you have a wash sale. You purchases and sales. gain distribution (or undistributed capital gain)

cannot deduct losses from wash sales. as a short-term capital loss. The rest of the loss Do not confuse the trade date with the is reported as a long-term capital loss. Substantially identical. In determining settlement date, which is the date by

whether the shares are substantially identical, CAUTION which the mutual fund shares must be

!

Example. On April 8, 2003, you bought a you must consider all the facts and circum- delivered and payment must be made. mutual fund share for $20. On June 25, 2003, stances. Ordinarily, shares issued by one mu- To find out how long you have held your the mutual fund paid a capital gain distribution of tual fund are not considered to be substantially shares, begin counting on the day after the trade $2 a share, which is taxed as a long-term capital identical to shares issued by another mutual date on which you bought the shares. (Do not gain. On July 11, 2003, you sold the share for fund. count the trade date itself.) The trade date on $17.50. If it were not for the capital gain distribu- For more information on wash sales, get which you dispose of the shares is counted as tion, your loss would be a short-term loss of Publication 550. part of your holding period. $2.50 ($20–$17.50). However, the part of the

Reporting information from Form 1099–B. loss that is not more than the capital gain distri- Example. If you bought shares on January Mutual funds and brokers report dispositions of bution ($2) must be reported as a long-term 11, 2002 (trade date), and sold them on January mutual fund shares on Form 1099–B, or a sub- capital loss. The remaining $0.50 of the loss can 11, 2003 (trade date), your holding period would stitute form containing substantially the same be reported as a short-term capital loss. not be more than 1 year. If you sold them on language. The form shows the amount of the January 12, 2003, your holding period would be sales price and indicates whether the amount Loss on share that paid qualified dividends. more than 1 year (12 months plus 1 day). reported is the gross amount or the net amount Any loss on the sale or exchange of a mutual

(gross amount minus commissions). fund share must be treated as a long-term capi- Mutual fund shares received as a gift. If you If your Form 1099–B or similar statement tal loss to the extent you received, from that receive a gift of mutual fund shares and your from the payer shows the gross sales price, do share, qualified dividends (defined earlier) that basis is determined by the donor’s basis, your not subtract the expenses of sale from it when are extraordinary dividends. This is true regard- holding period is considered to have started on reporting your sales price in column (d) on less of how long you actually held the share. the same day that the donor’s holding period Schedule D. Instead, report the gross amount in Generally, an extraordinary dividend is a divi- started.

column (d) and increase your cost or other ba- dend that equals or exceeds 10% (5% in the

sis, column (e), by any expense of the sale. If Inherited mutual fund shares. If you inherit case of preferred stock) of your adjusted basis in

your Form 1099–B shows that the gross sales mutual fund shares, you are considered to have the mutual fund share.

Page 9
Table 4. What Is Your Maximum Capital Gain Rate?

IF your net capital gain is from ... THEN your maximum capital gain rate is ...

collectibles gain 28%

gain on qualified small business stock equal to the section 1202

exclusion 28%

unrecaptured section 1250 gain 25%

20% for sales2 before May 6, 2003 other gain,1 and the regular tax rate that would apply is 25% or

higher 15% for sales2 after May 5, 2003

8% 3or 10% for sales2 Other gain,1 before May 6, 2003 and the regular tax rate that would apply is lower than

25% 5% for sales2 after May 5, 2003

1 “Other gain” means any gain that is not collectibles gain, gain on qualified small business stock, or unrecaptured section 1250 gain. 2 The term “sales” includes trades, involuntary conversions, and installment payments received.

3 The rate is 8% only for qualified 5-year gain (long-term capital gain from the sale of property you held for more than 5 years and sold before May 6, 2003).

How To Figure Net Gain or Loss Example. Bob and Gloria sold all of their

1) You have a net capital gain or qualified shares in a mutual fund. The sale resulted in a

Separate your short-term gains and losses from dividends (or both). You have a net capital capital loss of $7,000. They had no other capital

your long-term gains and losses on all the mu- gain if both lines 16 and 17a of Schedule transactions. Their taxable income was

tual fund shares and other capital assets you D are gains. Qualified Dividends are ex- $26,000. On their joint 2003 return, they can

disposed of during the year. Then determine plained earlier under Tax Treatment of deduct $3,000. The unused part of the loss,

your net short-term gain or loss and your net Distributions. $4,000 ($7,000 – $3,000), can be carried over

long-term gain or loss. to 2004. 2) Your taxable income on Form 1040, line If Bob and Gloria’s capital loss had been 40, is more than zero. Net short-term capital gain or loss. Net $2,000, their capital loss deduction would have short-term capital gain or loss is determined by If you have any collectibles gain, gain on been $2,000. They would have no carryover. adding the gains and losses from lines 1 through qualified small business stock, or unrecaptured 6 in column (f) of Part I, Schedule D (Form section 1250 gain, you may have to use the Capital loss carryover. If you have a total net

1040). Line 7b is the net short-term capital gain Schedule D Tax Worksheet in the Schedule D loss on line 17a of Schedule D that is more than

or loss. instructions to figure your tax. See the directions the yearly limit on capital loss deductions, you

below line 20 of Schedule D. can carry over the unused part to next year and Net long-term capital gain or loss. Net treat it as if you had incurred it in that next year. long-term capital gain or loss is determined by To determine your capital loss carryover, sub- adding the gains and losses from lines 8 through Capital Gain Tax Rates tract from your total net loss the lesser of: 14 in column (f) of Part II, Schedule D (Form

1040). Line 16 is the net long-term capital gain The tax rates that apply to a net capital gain are 1) Your allowable capital loss deduction for

or loss. generally lower than the tax rates that apply to the year, or

Your net long-term capital gain or loss in- other income. These lower rates are called the 2) Your taxable income increased by your al- cludes any undistributed capital gains you re- maximum capital gain rates. lowable capital loss deduction for the year ported on line 11 of Schedule D and any capital The term “net capital gain” means the and by your deduction for personal exemp- gain distributions you reported on line 13 of amount by which your net long-term capital gain tions. Schedule D. for the year is more than any net short-term If your deductions exceed your gross in- capital loss. Total net gain or loss. The total net gain or come, you start the computation in (2) above The maximum capital gain rate can be 5%, loss is determined by combining the net with a negative number. 8%, 10%, 15%, 20%, 25%, or 28%. See Table 4. short-term capital gain or loss on line 7b with the Use the Capital Loss Carryover Worksheet

net long-term capital gain or loss on line 16. The maximum capital gain rate does not ap- in Publication 550 to figure your capital loss

Enter the result on line 17a of Part III, Schedule ply if it is higher than your regular tax rate. carryover.

D (Form 1040). If line 17a shows a gain, enter When carried over, the loss will keep its

the amount on line 13a of Form 1040. If line 17a Example. You have a capital gain distribu- original character as long-term or short-term.

shows a loss, see Limit on Capital Loss Deduc- tion that is a section 1202 gain, so the maximum Therefore, a long-term capital loss carried over

tion, later. capital gain rate on the distribution would be from a previous year will offset long-term gains

28%. Because you are single and your taxable of the current year before it offsets short-term

income is $25,000, none of your taxable income gains of the current year. For more information

Figuring Your Tax will be taxed above the 15% rate. The 28% rate on figuring capital loss carryovers, get Publicadoes not apply. tion 550. If you are reporting capital gain distributions on

Form 1040A, use the Qualified Dividends and Separate returns. Capital loss carryovers

Capital Gain Tax Worksheet in the Form 1040A from separate returns are combined if you now Limit on Capital Loss Deduction instructions to figure your tax. See How To Re- file a joint return. However, if you once filed

port, earlier, to see whether you can report your If line 17a of Part III, Schedule D (Form 1040) jointly and are now filing separately, a capital

capital gain distributions on Form 1040A. shows a loss, your allowable capital loss deduc- loss carryover from the joint return can be deIf you are reporting capital gain distributions tion is the smaller of: ducted only on the separate return of the spouse

on Form 1040, but are not required to file Sched- who actually had the loss.

ule D, use the Qualified Dividends and Capital 1) $3,000 ($1,500 if you are married and filGain Tax Worksheet in the Form 1040 instruc- ing a separate return), or

tions to figure your tax. See How To Report, 2) Your total net loss shown on line 17a of earlier, to see whether you must file Schedule D. Investment Expenses Schedule D. If you are required to file Schedule D, you will

need to use Part IV of Schedule D (Form 1040) You can generally deduct the expenses of pro- Enter your allowable loss on line 13a of Form

to figure your tax if both of the following are true. 1040. ducing taxable investment income. These inPage 10
clude expenses for investment counseling and interest carried forward to the extent that your Limit on Investment

advice, legal and accounting fees, and invest- net investment income exceeds your investment Interest Expense ment newsletters. These expenses are deducti- interest in that later year.

ble as miscellaneous itemized deductions to the The amount you can deduct as investment inter- Form 4952. Use Form 4952 to figure your in- extent that they exceed 2% of your adjusted est expense may be limited in two different vestment interest expense deduction. For more gross income. See chapter 3 in Publication 550 ways. First, you may not deduct the interest on information about investment interest expense, for more information. money you borrow to buy or carry shares in a get Publication 550. Interest paid on money to buy or carry invest- mutual fund that distributes only exempt-interest

ment property is also deductible, but the deduc- dividends. If the fund also distributes taxable

dividends, you must allocate the interest be- tion may be limited. See Limit on Investment

tween the taxable and nontaxable income. Allo- Interest Expense, later.

cate the interest as explained under Expenses Comprehensive

allocable to exempt-interest dividends, earlier. Publicly offered mutual funds. Most mutual

Second, your deduction for investment inter- Example funds are publicly offered. Expenses of publicly est expense is limited to the amount of your net offered mutual funds are not treated as miscella- Robert and Janice Martin have the following four investment income. neous itemized deductions. This is because sources of investment income to report on their these mutual funds report only the net amount of Net investment income. This is figured by 2003 tax return. Their Schedule D (Form 1040) investment income after your share of the in- subtracting your investment expenses other is shown later.

vestment expenses has been deducted. than interest from your investment income. For

this purpose, do not include any income or ex- 1) $1,204 gain from the sale of 200 shares of

Nonpublicly offered mutual funds. If you penses taken into account to figure gain or loss Mutual Fund S on October 8, 2003. They

own shares in a nonpublicly offered mutual fund from passive activities. For more information on received Form 1099–B, and they report the

during the year, you can deduct your share of passive activity losses, get Publication 925, sale on Schedule D (Form 1040).

the investment expenses on your Schedule A Passive Activity and At-Risk Rules. Robert and Janice purchased these

(Form 1040). Claim them as a miscellaneous shares in 1989 at $10 each. They received Investment income. Investment income itemized deduction to the extent your miscella- some return of capital distributions in 1991, generally includes gross income derived from neous itemized deductions exceed 2% of your 1992, and 2000 that reduced their basis in property held for investment (such as interest, adjusted gross income. Your share of the ex- the shares. In 2001 and 2002, the Martins dividends, annuities, and royalties). It generally penses will be shown in box 5 of Form reported undistributed capital gains that in- does not include net capital gain derived from 1099–DIV. A nonpublicly offered mutual fund is creased their basis in their shares. They disposing of investment property. Nor does it

one that: received no distributions in 2003 before the include qualified dividends or capital gain distri- sale. butions from mutual fund shares. However, you 1) Is not continuously offered pursuant to a can choose to include part or all of these 2) $265 of ordinary dividends, including $250 public offering, amounts in investment income. For information of qualified dividends, and $61 of capital

2) Is not regularly traded on an established on this choice, see chapter 3 of Publication 550. gain distributions from Mutual Fund R. The

securities market, and capital gain distributions include $31 of Investment expenses. Investment ex- post-May 5 distributions and $30 of quali- penses include all income-producing expenses 3) Is held by fewer than 500 persons at any fied 5-year gain. The Martins received Form relating to the investment property, other than time during the tax year. 1099–DIV showing these amounts. They interest expenses, that are allowable deductions

Contact your mutual fund if you are not sure report the ordinary dividends on line 9a of after subtracting 2% of adjusted gross income.

whether it is nonpublicly offered. Form 1040. They report the qualified divi- In figuring the amount over the 2% limit, miscel- dends on line 9b of Form 1040. They do not laneous expenses that are not investment ex- report the ordinary dividends on Schedule B Expenses allocable to exempt-interest penses are disallowed before any investment (Form 1040) because their total ordinary dividends. You cannot deduct expenses that expenses are disallowed. dividends were not over $1,500. They re- are for the collection or production of exempt- For information on the 2% limit, get Publica- port the capital gain distributions on Sched- interest dividends. Expenses must be allocated tion 529, Miscellaneous Deductions. ule D (Form 1040) because they have other if they were for both taxable and tax-exempt capital transactions. They complete the Example. Jane, a single taxpayer, has in- income. One accepted method for allocating ex- Qualified 5-Year Gain Worksheet in the in- penses is to divide them in the same proportion vestment income for the year of $12,000. Jane’s structions for Schedule D. investment expenses (other than interest ex- that each type of income from the mutual fund is pense) directly connected with the production of Robert and Janice invested $3,800 in this to your total income from the fund. To find the income were $980 after subtracting the 2% limit fund in June 2003 and received 153.16 part of the expenses that relates to the tax-ex- on miscellaneous itemized deductions. Jane in- shares that cost $24.81 per share. They empt income, you must first divide your tax- curred $12,500 of investment interest expense requested that all of their distributions be exempt income by your total income. Then mul- during the year. She had no passive activity reinvested in more shares of the fund. On

tiply your expenses by the result. You cannot December 26, 2003, they acquired an addi- losses. Jane figures net investment income and deduct this part. the limit on her investment interest expense de- tional 13.03 shares at $25.01 per share

duction as follows: from their reinvested dividends.

Example. William received $600 in dividends from his mutual fund: exempt-interest div- 3) $101 of exempt-interest dividends from Mu- Total investment income ......... $12,000 idends of $480 and taxable dividends of $120. In tual Fund X. They receive a statement from Subtract: Investment expenses the fund, and they report this nontaxable earning this income, he had a $50 expense for a (other than interest) . . . . . . –980 amount on line 8b of Form 1040. newsletter on mutual funds. William divides the Net investment income .......... $11,020

exempt-interest dividends by the total dividends The Martins invested $2,600 in this fund

For the year, Jane’s investment interest ex- in April 2001 and received 87.54 shares at to figure the part of the expense that is not pense deduction is limited to $11,020 (her net deductible. Therefore, 80% ($480 $29.70 per share. They received exempt- ÷ $600) of investment income). The disallowed interest ex- William’s expense is for exempt-interest in- interest dividends of $92 in 2001 and $107 pense of $1,480 ($12,500 − $11,020) can be in 2002. come. He cannot deduct $40 (80% of $50) of the carried forward to the following year as ex- expense. William may claim the balance of the 4) $237 in ordinary dividends, including $220 plained next under Carryover. expense, $10, as a miscellaneous itemized de- of qualified dividends, from 100 shares of

duction subject to the 2%-of-adjusted-gross- in- Carryover. You can carry forward to the next common stock in Green Publishing Comcome limit. That is the part of the expense tax year the investment interest that you cannot pany. They received Form 1099–DIV, and

allocable to the taxable dividends. deduct because of the limit. You can deduct the they report the ordinary dividends on line 9a

Page 11
of Form 1040 and the qualified dividends on Robert and Janice enter the $61 capital gain complete columns (c) and (d). Their sales price

line 9b. distribution from Mutual Fund R (from box 2a of in column (d) (the gross proceeds shown in box

Robert and Janice bought this stock in Form 1099–DIV) on line 13, column (f). They 2 of Form 1099–B) is $3,200 ($16 per share).

1989 for $10.29 per share. enter the $31 post-May 5 capital gain distribu- They enter their gain of $1,204 in column (f).

tion (from box 2b of Form 1099–DIV) in column They also enter it in column (g) because they Mutual Fund Record. Robert and Janice (g) of line 13. sold the shares after May 5. keep track of all their basis adjustments on their They enter the $30 qualified 5-year gain Mutual Fund Record, Robert and Janice add the amounts in col- shown later. They show (from box 2c of Form 1099–DIV) on line 5 of the umn (f) of lines 8 and 13 and enter their net the return of capital distributions and the undis- Qualified 5-Year Gain Worksheet in the instructributed capital gains from Mutual Fund S and long-term capital gain of $1,265 on line 16. They tions for Schedule D. This is their only qualified the reinvested dividends from Mutual Fund R. also enter that amount on line 17. They add the 5-year gain, so they also enter $30 on lines 6 They do not show the exempt-interest dividends amounts in column (g) of lines 8 and 13 and and 8 of the worksheet and on line 35 of Schedfrom Mutual Fund X because those dividends do enter the result, $1,235, on lines 15 and 17b. ule D.

not change their basis in the shares. Because lines 16 and 17 are gains, they com- They report the sale of their shares in Mutual The Martins keep this record with their mu- pute their tax using Part IV of Schedule D. They Fund S on line 8 because they owned the shares tual fund documents, and they use it to report enter their qualified dividends of $470 ($250 for more than 1 year. They use the information their 2003 sale of Mutual Fund S. from Mutual Fund R and $220 from Green Pub- from their Mutual Fund Record to complete colPreparing Schedule D. The Martins use their umns (a), (b), and (e). After adjustment for their lishing Co.) on line 23 of Part IV. (Part IV is

Form 1099–B and their Mutual Fund Record to return of capital distributions and their undistrib- shown, but not filled in, except line 23 for qualifigure the gain from the sale of Mutual Fund S to uted capital gains, their basis is $1,996 ($9.98 fied dividends and line 35 for qualified 5-year

report on Schedule D. per share). They use their Form 1099–B to gain.)

Table 5. Mutual Fund Record for Robert and Janice Martin

Acquired1 Sold or Redeemed

Adjusted2

Mutual Fund Adjustment to Basis Per Share Basis Per Number Cost Number

Date of Per Share Date of

Shares Share Shares

12-31-91 12-31-92 12-31-00 12-31-01 8-31-02 MUTUAL FUND S 7-12-89 200 10.00 9.98 10-8-03 200 (.05) (.02) (.04) .03 .06

MUTUAL FUND X 4-19-01 87.54 29.70

MUTUAL FUND R 6-6-03 153.16 24.81

12-26-03 13.03 25.01

1 Include share received from reinvestment of distributions.

2 Cost plus or minus adjustments.

Page 12
Qualified 5-Year Gain Worksheet—Line 35

1. Enter the total of all gains that you reported on line 8, column (f), of Schedules D and D-1 from property

held more than 5 years and disposed of before May 6, 2003. Do not reduce these gains by any losses . . 1.

2. Enter the total of all gains from property held more than 5 years and disposed of before May 6, 2003, from

Form 4797, Part I, but only if Form 4797, line 7, column (g), is more than zero. Do not reduce these gains

by any losses ................................................................... 2.

3. Enter the total of all capital gains from property held more than 5 years and disposed of before May 6,

2003, from Form 4684, line 4, but only if Form 4684, line 15, is more than zero. Do not reduce these gains

by any losses ................................................................... 3.

4. Enter the total of all capital gains from property held more than 5 years and disposed of before May 6,

2003, from Form 6252; Form 6781, Part II; and Form 8824. Do not reduce these gains by any losses . . . 4.

5. Enter the total of any qualified 5-year gain reported to you on:

• Form 1099-DIV, box 2c;

• Form 2439, box 1c; and } • Schedule K-1 from a partnership, S corporation, estate, or trust (do not ............... 5. 30.00

include gains from section 1231 property; take them into account on

line 2

above, but only if Form 4797, line 7, column (g), is more than zero).

6. Add lines 1 through 5 ............................................................. 6. 30.00

7. Enter the part, if any, of the gain on line 6 that is:

• Attributable to 28% rate gain or } ....................... 7. • Included on line 6, 10, 11, or 12 of the Unrecaptured Section

1250 Gain Worksheet on page D-7.

8. Qualified 5-year gain. Subtract line 7 from line 6. Enter the result here and on Schedule D, line 35 ..... 8. 30.00

Page 13
ROBERT A. and JANICE MARTIN 123 00 4567

MUTUAL FUND S

200 Shares

7-12-89 10-8-03 3,200

3,200

1,996 1,204

61

1,265

*Include in column (g) all gains and losses from column (f) from sales, exchanges, or conversions (including installment payments received) after

May 5, 2003. However, do not include gain attributable to unrecaptured section 1250 gain, “collectibles gains and losses” (as defined on page

D-8 of the instructions) or eligible gain on qualified small business stock (see page D-4 of the instructions).

OMB No. 1545-0074 SCHEDULE D Capital Gains and Losses (Form 1040) Attach to Form 1040. See Instructions for Schedule D (Form 1040).

Department of the Treasury

Internal Revenue Service

Attachment

Use Schedule D-1 to list additional transactions for lines 1 and 8. Sequence No. 12

Name(s) shown on Form 1040 Your social security number

Short-Term Capital Gains and Losses—Assets Held One Year or Less

(f) Gain or (loss) for

the entire year

Subtract (e) from (d)

(e) Cost or other basis

(see page D-6 of

the instructions)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(d) Sales price

(see page D-6 of

the instructions)

(c) Date sold

(Mo., day, yr.)

1

Enter your short-term totals, if any, from

Schedule D-1, line 2

2

Total short-term sales price amounts.

Add lines 1 and 2 in column (d)

3

3

5

Short-term gain from Form 6252 and short-term gain or (loss) from Forms 4684,

6781, and 8824

5

6

6

Net short-term gain or (loss) from partnerships, S corporations, estates, and trusts

from Schedule(s) K-1

7b

Short-term capital loss carryover. Enter the amount, if any, from line 8 of your

2002 Capital Loss Carryover Worksheet

Net short-term capital gain or (loss). Combine lines 1 through 6 in column (f)

Long-Term Capital Gains and Losses—Assets Held More Than One Year

8

Enter your long-term totals, if any, from

Schedule D-1, line 9

9

10 Total long-term sales price amounts.

Add lines 8 and 9 in column (d) 10

11

Gain from Form 4797, Part I; long-term gain from Forms 2439 and 6252; and

long-term gain or (loss) from Forms 4684, 6781, and 8824

11

12

12

13

Net long-term gain or (loss) from partnerships, S corporations, estates, and trusts

from Schedule(s) K-1

14

Capital gain distributions. See page D-2 of the instructions

15 15

14

16

Long-term capital loss carryover. Enter the amount, if any, from line 13 of your

2002 Capital Loss Carryover Worksheet ( )

Combine lines 8 through 13 in column (g). If zero or less, enter -0-

Net long-term capital gain or (loss). Combine lines 8 through 14 in column (f)

Next: Go to Part III on the back.

16

For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule D (Form 1040) 2003 Cat. No. 11338H

( )

4

4

Part I

Part II

b

13

(b) Date

acquired

(Mo., day, yr.)

2

9

(99)

(a) Description of property

(Example: 100 sh. XYZ Co.)

(c) Date sold

(Mo., day, yr.)

(b) Date

acquired

(Mo., day, yr.)

2003

(g) Post-May 5 gain

or (loss)*

(see below)

Combine lines 1 through 5 in column (g). If the result is a loss, enter the result.

Otherwise, enter -0-. Do not enter more than zero

7a

(f) Gain or (loss) for

the entire year

Subtract (e) from (d)

(g) Post-May 5 gain

or (loss)*

(see below)

7a ( )

(e) Cost or other basis

(see page D-6 of

the instructions)

(d) Sales price

(see page D-6 of

the instructions)

Filled-in Schedule D—Robert and Janice Martin

(Page references are to the Schedule D instructions.)

1,204

31

1,235

Page 14
Multiply line 38 by 10% (.10)

1,265

30

Schedule D (Form 1040) 2003

Taxable Gain or Deductible Loss

Combine lines 7b and 16 and enter the result. If a loss, enter -0- on line 17b and go to line 18.

If a gain, enter the gain on Form 1040, line 13a, and go to line 17b below

17a

17a

18 ( )

Part III

Page 2

18

Next:

If line 17a is a loss, enter here and on Form 1040, line 13a, the smaller of (a) that loss or

(b) ($3,000) (or, if married filing separately, ($1,500)) (see page D-7 of the instructions)

Part IV Tax Computation Using Maximum Capital Gains Rates

Enter your unrecaptured section 1250 gain, if any, from line 18 of the worksheet on page D-7

22

23

24

25

Add lines 22 and 23

26

27

31

33

34

41

42

43

Subtract line 41 from line 40

25

26

27

28

29

30

37

32

21 Enter your taxable income from Form 1040, line 40

22

● If line 16 of Schedule D is a gain or you have qualified dividends on Form 1040, line

9b, complete Part IV below.

Amount from line 4g of Form 4952 (investment interest expense)

Enter the amount from line 27

Subtract line 29 from line 28. If zero or less, enter -0- and go to line 40

Enter the smaller of line 30 or line 31

Multiply line 32 by 5% (.05)

Enter the smaller of line 21 or line 26

Enter the amount from line 30 (if line 30 is blank, enter -0-)

19

39

34

35

36

47

44

Add lines 17b and 23*

Schedule D (Form 1040) 2003

● Otherwise, skip the rest of Schedule D and complete the rest of Form 1040.

Next: ● If you have qualified dividends on Form 1040, line 9b, complete Form 1040 through

line 40, and then complete Part IV below (but skip lines 19 and 20).

● Otherwise, skip Part IV below and complete the rest of Form 1040.

20

If lines 19 and 20 are zero, go to line 21. Otherwise, complete the worksheet on page D-11 of the instructions to figure

the amount to enter on lines 35 and 53 below, and skip all other lines below.

24

Enter the smaller of line 16 or line 17a, but not less than zero

Enter your qualified dividends from Form 1040, line 9b 23

Subtract line 25 from line 24. If zero or less, enter -0-

If line 27 is more than line 28, skip lines 29–39 and go to line 40.

32

Add lines 17b and 23*

35

Subtract line 32 from line 30

38

36

Enter your qualified 5-year gain, if any, from

line 8 of the worksheet on page D-10

45

46

47

Enter the amount from line 32 (if line 32 is blank, enter -0-)

Subtract line 44 from line 43

Enter the smaller of line 42 or line 45

49

40

If lines 26 and 30 are the same, skip lines 40–49 and go to line 50.

20 Enter your 28% rate gain, if any, from line 7 of the worksheet on page D-8 of the instructions

Subtract line 26 from line 21. If zero or less, enter -0-

28 Enter the smaller of line 21 or:

29

30

37

Enter the smaller of line 34 or line 35

38

Multiply line 36 by 8% (.08)

39

Subtract line 36 from line 34

40

48

49

50

Multiply line 48 by 20% (.20)

Multiply line 46 by 15% (.15)

Subtract line 46 from line 42

51

Figure the tax on the amount on line 27. Use the Tax Table or Tax Rate Schedules, whichever applies

52

53

Add lines 33, 37, 39, 47, 49, and 50

Figure the tax on the amount on line 21. Use the Tax Table or Tax Rate Schedules, whichever applies

Tax on all taxable income. Enter the smaller of line 51 or line 52 here and on Form 1040, line 41

b Combine lines 7a and 15. If zero or less, enter -0-. Then complete Form 1040 through line 40 17b

19

21

31

33

41

42

43

44

45

46

48

50

51

52

53

● $56,800 if married filing jointly or qualifying widow(er);

● $28,400 if single or married filing separately; or

● $38,050 if head of household 

If lines 30 and 32 are the same, skip lines 34–39 and go to line 40.

If line 16 or line 17a is zero or less, skip lines 19 and 20 and go to line 21. Otherwise, go to line 19.

*If lines 23 and 25 are more than zero, see Lines 31 and 43 on page D-9 for the amount to enter.

470

Filled-in Schedule D—Robert and Janice Martin

(Page references are to the Schedule D instructions)

1,235

Page 15
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Page 16
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Publication 3207, Small Business Resource Guide, is a must for every small

business owner or any taxpayer about to start a

Page 17
To help us develop a more useful index, please let us know if you have ideas for index entries. Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.

ADI Redemption fees ......... 9

Adjusted basis ........... 6 Distributions ............ 2 Information returns ....... 7 Redemptions ............ 7

Amount you realize ....... 9 Dividends: Inherited mutual fund Reinvestment rights ....... 5

Appreciated property ...... 6 Exempt-interest . . . . . . . 3, 9 shares . . . . . . . . . . . . . 6, 9 Return of capital

Assistance (See Tax help) Ordinary .............. 2 Investment expenses . . . . . 10 distributions ........... 3

Automatic reinvestment Reinvestment of . . . . . . . 4, 9 Investment income . . . . . . . 11

Year-end .............. 2 plan ................. 4 S

Double-category method . . . 8 Average basis: J Sales ................. 7

Double-category method . . . 8 Joint tenants ............ 2 Schedule D (Form 1040), Single-category method .... 7 E how to report on ........ 9

Exchanges ............. 7 Settlement date .......... 9 L B Exchanges of mutual Short-term losses ........ 9 Limit on investment interest

Basis: funds ................ 7 Single-category method .... 7 expenses . . . . . . . . . . . . 11

Adjusted .............. 5 Exempt-interest Suggestions ............ 2 Load charges ........... 5 Average .............. 7 dividends . . . . . . . . . 3, 9, 11

Cost ................. 7 Exit fees ............... 9

M T Keeping track of ......... 5

Money market fund Tax credit: Original ............... 5 ....... 2 F Form 2439 ............ 3 Basis of shares: More information (See Tax help) First-in first-out (FIFO) ..... 7 Undistributed capital Acquired by gift ......... 5 Mutual fund record ........ 6 Foreign tax credit ......... 5 gains ............... 3 Acquired by inheritance .... 6 Mutual funds: Foreign tax deduction ..... 5 Tax help . . . . . . . . . . . . . . 16 Acquired by purchase ..... 5 Defined ............... 2 Forms: Forms and publications: Acquired by reinvestment . . . 5 Individual retirement 1099–B . . . . . . . . . . . . 7, 9 Download from Web . . . 16 arrangements (IRAs) .... 2 1099-DIV . . . . . . . . . . . 2, 11 Tax rates, capital gain . . . . 10 C Money market fund ....... 2 2439 ................ 3 Nonpublicly offered Taxpayer identification . . . . . . 11 Capital gain 4952 . . . . . . . . . . . . . . . 11 number .............. 7 Tax-exempt ............ 2 distributions . . . . . . . . 3, 4, 9 Free tax services . . . . . . . . 16 Trade date .............. 9 Capital gains: TTY/TDD information . . . . . 16 Form 2439 ............ 3 N

Net long-term . . . . . . . . . . 10 G Net capital gain . . . . . . . . . 10

Net short-term . . . . . . . . . 10 Gains and losses . . . . . . . 9, 10 Net capital loss . . . . . . . . . 10 U

Tax rates . . . . . . . . . . . . 10 Gifts of mutual fund Nominees Undistributed capital .............. 5

Undistributed ........... 3 shares ............... 5 gains . . . . . . . . . . . . . . 3, 5 Nontaxable distributions . . . 3

Capital loss carryover . . . . 10 Gifts of shares ........... 9

Carryovers: O W

Capital loss . . . . . . . . . . . 10 H Wash sales ............. 9 Ordinary dividends ....... 2 Investment expenses . . . . 11 Help (See Tax help) Worksheet .............. 6 Separate returns . . . . . . . 10 Holding period ........... 9

Comments ............. 2 Shares acquired by gift .... 9 P Y Commissions . . . . . . . . . 5, 9 Shares acquired by Publications (See Tax help) Year-end dividends ....... 2 Community property states: inheritance ........... 9

Inherited mutual fund Shares acquired by Q ■

shares .............. 6 reinvestment .......... 9 Qualified dividends ....... 2 Tax treatment of How to report

dividends ............ 2 distributions ........... 4

Cost basis .............. 7 R

Recordkeeping . . . . . . . 5, 6, 7

Page 18
Tax Publications for Individual Taxpayers

General Guides

Your Rights as a Taxpayer

Your Federal Income Tax (For

Individuals)

Farmer’s Tax Guide

Tax Guide for Small Business (For

Individuals Who Use Schedule C or

C-EZ)

Tax Calendars for 2004

Highlights of 2003 Tax Changes

Guide to Free Tax Services

Specialized Publications

Armed Forces’ Tax Guide

Fuel Tax Credits and Refunds

Travel, Entertainment, Gift, and Car

Expenses

Exemptions, Standard Deduction, and

Filing Information

Medical and Dental Expenses (Including

the Health Coverage Tax Credit)

Child and Dependent Care Expenses

Divorced or Separated Individuals

Tax Withholding and Estimated Tax

Foreign Tax Credit for Individuals

U.S. Government Civilian Employees

Stationed Abroad

Social Security and Other Information

for Members of the Clergy and

Religious Workers

U.S. Tax Guide for Aliens

Moving Expenses

Selling Your Home

Credit for the Elderly or the Disabled

Taxable and Nontaxable Income

Charitable Contributions

Residential Rental Property

Commonly Used Tax Forms

Miscellaneous Deductions

Tax Information for First-Time

Homeowners

Reporting Tip Income

Self-Employment Tax

Installment Sales

Partnerships

Sales and Other Dispositions of Assets

Casualties, Disasters, and Thefts

Investment Income and Expenses

Basis of Assets

Recordkeeping for Individuals

Older Americans’ Tax Guide

Community Property

Examination of Returns, Appeal Rights,

and Claims for Refund

Survivors, Executors, and

Administrators

Determining the Value of Donated

Property

Mutual Fund Distributions

Tax Guide for Individuals With Income

From U.S. Possessions

Pension and Annuity Income

Casualty, Disaster, and Theft Loss

Workbook (Personal-Use Property)

Business Use of Your Home (Including

Use by Daycare Providers)

Individual Retirement Arrangements

(IRAs)

Tax Highlights for U.S. Citizens and

Residents Going Abroad

What You Should Know About the IRS

Collection Process

Earned Income Credit (EIC)

Tax Guide to U.S. Civil Service

Retirement Benefits

Tax Highlights for Persons with

Disabilities

Bankruptcy Tax Guide

Direct Sellers

Social Security and Equivalent

Railroad Retirement Benefits

How Do I Adjust My Tax Withholding?

Passive Activity and At-Risk Rules

Household Employer’s Tax Guide

Tax Rules for Children and

Dependents

Home Mortgage Interest Deduction

How To Depreciate Property

Practice Before the IRS and

Power of Attorney

Introduction to Estate and Gift Taxes

The IRS Will Figure Your Tax

Per Diem Rates

Reporting Cash Payments of Over

$10,000 (Received in a Trade or

Business)

The Taxpayer Advocate Service

of the IRS

Derechos del Contribuyente

Cómo Preparar la Declaración de

Impuesto Federal

Crédito por Ingreso del Trabajo

English-Spanish Glossary of Words

and Phrases Used in Publications

Issued by the Internal Revenue

Service

U.S. Tax Treaties

Spanish Language Publications

Tax Highlights for Commercial

Fishermen

910

595

553

509

334

225

17

1

3

378

463

501

502

503

504

505

514

516

517

519

521

523

524

525

526

527

529

530

531

533

537

544

547

550

551

552

554

541

555

556

559

561

564

570

575

584

587

590

593

594

596

721

901

907

908

915

919

925

926

929

946

911

936

950

1542

967

1544

1546

596SP

1SP

850

579SP

594SP Comprendiendo el Proceso de Cobro

947

968 Tax Benefits for Adoption

Informe de Pagos en Efectivo en

Exceso de $10,000 (Recibidos en

una Ocupación o Negocio)

1544SP

See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone,

and mail. For fax orders only, use the catalog number when ordering.

U.S. Individual Income Tax Return

Itemized Deductions & Interest and

Ordinary Dividends

Profit or Loss From Business

Net Profit From Business

Capital Gains and Losses

Supplemental Income and Loss

Earned Income Credit

Profit or Loss From Farming

Credit for the Elderly or the Disabled

Income Tax Return for Single and 

Joint Filers With No Dependents

Self-Employment Tax

U.S. Individual Income Tax Return

Interest and Ordinary Dividends for

Form 1040A Filers

Child and Dependent Care

Expenses for Form 1040A Filers

Credit for the Elderly or the 

Disabled for Form 1040A Filers

Estimated Tax for Individuals

Amended U.S. Individual Income Tax Return

Unreimbursed Employee Business

Expenses

Underpayment of Estimated Tax by

Individuals, Estates, and Trusts

Power of Attorney and Declaration of

Representative

Child and Dependent Care Expenses

Moving Expenses

Depreciation and Amortization

Application for Automatic Extension of Time

To File U.S. Individual Income Tax Return

Investment Interest Expense Deduction

Additional Taxes on Qualified Plans (Including

IRAs) and Other Tax-Favored Accounts

Alternative Minimum Tax—Individuals

Noncash Charitable Contributions

Change of Address

Expenses for Business Use of Your Home

Nondeductible IRAs

Passive Activity Loss Limitations

1040

Sch A&B

Sch C

Sch C-EZ

Sch D

Sch E

Sch EIC

Sch F

Sch H Household Employment Taxes 

Sch R

Sch SE

1040EZ

1040A

Sch 1

Sch 2

Sch 3

1040-ES

1040X

2106 Employee Business Expenses

2106-EZ

2210

2441

2848

3903

4562

4868

4952

5329

6251

8283

8582

8606

8822

8829

Form Number and Title

Catalog

Number

Sch J Farm Income Averaging

8812 Additional Child Tax Credit

8863 Education Credits

Catalog

Number

11700

20604

11744

11862

11980

12490

12906

13141

13177

13329

13600

62299

63704

63966

10644

12081

13232

25379

11320

Form Number and Title

11330

11334

14374

11338

11344

13339

11346

12187

25513

11359

11358

11327

12075

10749

12064

11329

11340

11360

See How To Get Tax Help for a variety of ways to get publications, including

by computer, phone, and mail.

970 Tax Benefits for Education

971 Innocent Spouse Relief

Sch D-1 Continuation Sheet for Schedule D 10424

972 Child Tax Credit

Tax Guide for U.S. Citizens and

Residents Aliens Abroad

54

Net Operating Losses (NOLs) for

Individuals, Estates, and Trusts

536

Tax-Sheltered Annuity Plans (403(b)

Plans)

571

969 Medical Savings Accounts (MSAs)

9465 Installment Agreement Request 14842

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