Irs Publication 564 - Mutual Fund Distributions

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 sales

before May 6, 2003

other gain,

and the regular tax rate that would apply is 25% or

higher

15% for sales

after May 5, 2003

or 10% for sales

before May 6, 2003

Other gain,

and the regular tax rate that would apply is lower than

25%

5% for sales

after May 5, 2003

“Other gain” means any gain that is not collectibles gain, gain on qualified small business stock, or unrecaptured section 1250 gain.

The term “sales” includes trades, involuntary conversions, and installment payments received.

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

dividends (or both). You have a net capital

Separate your short-term gains and losses from

capital loss of $7,000. They had no other capital

gain if both lines 16 and 17a of Schedule

your long-term gains and losses on all the mu-

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

Capital loss carryover. If you have a total net

section 1250 gain, you may have to use the

1040). Line 7b is the net short-term capital gain

loss on line 17a of Schedule D that is more than

Schedule D Tax Worksheet in the Schedule D

or loss.

the yearly limit on capital loss deductions, you

instructions to figure your tax. See the directions

can carry over the unused part to next year and

below line 20 of Schedule D.

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

1) Your allowable capital loss deduction for

The tax rates that apply to a net capital gain are

or loss.

the year, or

generally lower than the tax rates that apply to

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

The maximum capital gain rate does not ap-

net long-term capital gain or loss on line 16.

in Publication 550 to figure your capital loss

ply if it is higher than your regular tax rate.

Enter the result on line 17a of Part III, Schedule

carryover.

D (Form 1040). If line 17a shows a gain, enter

When carried over, the loss will keep its

Example. You have a capital gain distribu-

the amount on line 13a of Form 1040. If line 17a

original character as long-term or short-term.

tion that is a section 1202 gain, so the maximum

shows a loss, see Limit on Capital Loss Deduc-

Therefore, a long-term capital loss carried over

capital gain rate on the distribution would be

tion, later.

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 Publica-

does not apply.

tion 550.

If you are reporting capital gain distributions on

Separate returns. Capital loss carryovers

Form 1040A, use the Qualified Dividends and

from separate returns are combined if you now

Capital Gain Tax Worksheet in the Form 1040A

Limit on Capital Loss Deduction

file a joint return. However, if you once filed

instructions to figure your tax. See How To Re-

jointly and are now filing separately, a capital

port, earlier, to see whether you can report your

If line 17a of Part III, Schedule D (Form 1040)

loss carryover from the joint return can be de-

capital gain distributions on Form 1040A.

shows a loss, your allowable capital loss deduc-

ducted only on the separate return of the spouse

If you are reporting capital gain distributions

tion is the smaller of:

who actually had the loss.

on Form 1040, but are not required to file Sched-

1) $3,000 ($1,500 if you are married and fil-

ule D, use the Qualified Dividends and Capital

Gain 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

Investment Expenses

earlier, to see whether you must file Schedule D.

Schedule D.

If you are required to file Schedule D, you will

need to use Part IV of Schedule D (Form 1040)

Enter your allowable loss on line 13a of Form

You can generally deduct the expenses of pro-

to figure your tax if both of the following are true.

1040.

ducing taxable investment income. These in-

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Irs Publication 564 - Mutual Fund Distributions - 2003 Page 10

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