Tax: Capital Gains and Losses: K-1 Information on Form 1099

You may receive information reporting on Form 1099 which is also reported on the K-1.  For example, if you hold publicly traded units in a partnership, and the partnership does not pay out dividends but instead pays a quarterly cash distribution which is classified as return of capital and not dividend income, the amount will also be reported on Form 1099-DIV.  Distributions  from Canadian income or royalty trusts may be reported on Form 1099 or if treated as a partnership on the K-1.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: Schedule K-1

If you hold shares or units in a publicly traded partnership such as a master limited partnership or a royalty trust, you will receive Schedule K-1 directly from the general partner or trust.

The K-1 reports your pro rata share of the partnership’s taxable income, gain, loss and deductions.  This information is required to be reported on a Schedule K-1 by the partnership.  Any income or expense, as well as distribution, from the partnership will adjust the cost basis of your holding.

Contact Investor Relations associated with the fund directly or access the fund’s website for more information or to obtain the K-1 tax information on-line.

You are advised to keep Schedule K-1 for your records; you are not required to file it with your tax return.   Refer to IRS Publication 541, Partnerships, for more information and consult your tax advisor.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax: Capital Gains and Losses - The Wash Sale Rule

The IRS defines a wash sale as a sale of stock or securities at a loss within 30 days before or after you buy or acquire in a fully taxable trade, or acquire a contract or option to buy, substantially identical stock or securities.  

A wash sale occurs if you realize a loss on the sale of the security, and then buy a "substantially identical" replacement stock within the 61-day period, and the loss is deferred until the replacement shares are sold.

Commodity futures contracts are not considered stock or securities and are not covered by the wash sale rule; however any straddle position acquired after June 23, 1981 is subject to the rule. 

For further information on the wash sale rule, refer to IRS Publication 550, Investment Income and Expenses, the instructions to Schedule D (Form 1040), and consult your tax advisor.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: Single Stock Futures

Transactions involving single stock futures are not required to be reported on Form 1099.   Refer to IRS Publication 550, Investment Income and Expenses for further discussion, and consult your tax advisor.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax: Capital Gains and Losses: Mutual Fund Capital Gains Distributions

Mutual fund distributions may be in the form of long-term capital gains or ordinary income distributions (which includes any short-term capital gain).

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Capital Gains and Losses: The Difference Between Short-term and Long-term Capital Gains

Short-term capital gains are capital gains earned on the sale of securities and mutual fund shares held for one year or less. If you hold an investment for more than one year, any gain on the sale of the asset is considered long-term and is taxed at a more favorable capital gains tax rate.  The date a security is acquired is the trade date +1 and the date of sale is the trade date.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax Reporting: Capital Gains and Losses

Assets held for investment purposes, including as stocks, options and bonds, are classified by the IRS as capital assets. When such assets are sold, a capital gain or loss is realized on the sale. If the capital asset is sold for a price greater than its purchase price, then a capital gain has been realized; if less, then a capital loss has been realized. In determining whether a capital gain or loss has been realized, adjustments to the purchase and sales price may be allowed to recognize certain transaction costs such as commissions and other specific adjustments.

Proper determination and recognition of capital gain and loss is important as capital gains may be subject to lower tax rates than other forms of income. Net capital losses are subject to annual limits. The taxation of capital gains and losses are also distinguished by the length of time the asset was held prior to sale.

IRS Publication 550, "Investment Income and Expenses" is a good source of information on this topic. It is available free on line at www.IRS.gov/formspubs. We also recommend you consult your tax professional.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Dividends and Distributions: What if the mutual fund I own invested in foreign securities?

If you own a mutual fund that invested in foreign securities, the mutual fund may have paid taxes to a foreign country as a result of owning those securities.  Form 1099-DIV reports the gross amount of the dividend and the amount of foreign tax. Refer to IRS Publication 514, Foreign Tax Credit for Individuals and the instructions for Form 1040, Schedule A (Itemized Deductions) and Form 1116, Foreign Tax Credit.   

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

Tax: Dividends and Distributions: Where are foreign tax withheld amounts reported?

The amount of foreign tax withheld from dividends is reported on Form 1099-DIV. The IRS does not require reporting of foreign tax withheld on gross proceeds and substitute payments in lieu. Refer to IRS Publication 514, Foreign Tax Credit for Individuals and the instructions for Form 1040, Schedule A (Itemized Deductions) and Form 1116, Foreign Tax Credit. Please consult your tax advisor for further guidance.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.

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