Overview If a mutual fund has long-term capital gains, it can designate part of its dividend as a capital gain distribution. The shareholders report this part of the dividend as if it were their own long-term capital gain. These amounts are called capital gain distributions or capital gain dividends . This treatment applies only to long-term capital gains. If your mutual fund dividend includes short-term capital gains, you must treat that portion of the dividend as ordinary income, not capital gain.
Some mutual funds make capital gain allocations .
These are not the same as capital gain dividends . We explain the tax treatment of this item in Mutual Fund Capital Gain Allocations . Taxed A capital gain distribution is taxed as long-term capital gain. That's true even for shareholders who have held the mutual fund shares less than a year. The tax rate on the capital gain distribution depends on the category of the capital gain, and on your tax bracket .