Liquidating distribution capital gain

26-Aug-2017 06:34

Before 1986, all mutual fund shareholders were charged long-term capital gains on distributions, regardless of how long they held the funds.

With the passing of the 1986 Tax Reform Act, shareholders now pay long- or short-term capital gains tax based on the time they've owned the fund.

Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose.

For more information about the tax on unearned income of children and the parents' election, see chapter 31. Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income.

You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation.

Basis in a partnership is a moving target, requiring frequent adjustments.

Because the partnership is not a separate tax entity, any gains or losses pass through to the partners when the partnership liquidates.

Liquidating distributions might generate capital gains, ordinary income, a loss or no effect at all.

Capital gains distributions are taxed at capital gains rates to the person receiving the distribution.

Holders of mutual fund shares are required to pay capital gains tax on any capital gains distributions made by the funds they own.

Of that total gain, 80% are long-term capital gains and 20% are short-term capital gains.