1099-DIV showing capital gains after a transfer from one broker to another

[Xarax]

I transferred a mutual fund from TROWEPRICE to SCHWAB.  The TROWEPRICE 1099-Div form in box 2b indicates capital gains which did not occur since it was only a transfer, and nothing was sold.  If you enter amount that in the 1099-DIV form in 2b then TurboTax it treats it as capital gains and increases the taxes owed accordingly.  SCHWAB tax people have verified no sale took place and said if it is not on a 1099-B form ignore it.

If capital gains should only be reported via a 1099-B form, why is it on the 1099-DIV form and why would TurboTax treat it like capital gains.

Very confused.

[Xarax]

..that is Box 2A not 2B

[HelenC12]

@Xarax 

From the information provided, it appears the mutual fund has issued a capital gain distribution (not a sale) and that is why you received form 1099-DIV. The fact that you transferred the money from one institution to another is irrelevant. You would have received the 1099-DIV even if you didn't transfer financial institutions. 

• Note: Form 1099-DIV Box 2a. Shows total capital gain distributions from a regulated investment company (RIC) or real estate investment trust (REIT). 

[Edited 2-6-22|8:35 am PST]

[fanfare]

Schwab should be able to give better answers.

1099-DIV is a tax document and you have to report it.

[Xarax]

Thanks, but Schwab tax dept said to ignore it since it was not on the 1099-B.  But it clearly is raising my taxes owed on TurboTax.

[fanfare]

Are you going to ignore it?

Schwab gave you bad advice.

[Xarax]

I am going to reach out to T Rowe Price and then my CPA.  I am not going to ignore it, but I don't know how to fix it.

[TomD8]

A capital gain distribution from a mutual fund is correctly reported on a 1099-DIV (in Box 2a) and is taxable.  It should be entered into your tax return exactly as is.  There is nothing that you need to fix.

[VolvoGirl]

I haven't sold any of my mutual funds yet but my 1099Div always has capital gains on it.   That's very common.  That's just from things that happened inside the fund and gets passed on to you.  Everyone has it.

[Xarax]

It was not a distribution, it was a transfer.  The transfer brings over my cost basis.  If I were to sell the mutual fund then I would be charged capital gains tax twice.

[Xarax]

It is as if I had sold the entire mutual fund instead of transferring it to another broker.  I also always have small amounts in the DIV.  This is not a small amount.

[TomD8]

@Xarax --

I think you are mixing up two different things.

A capital gain (or loss) occurs when you sell your mutual fund shares.  These sales are reported on a 1099-B.

A capital gain distribution occurs when the mutual fund sells its own shares of stocks or other investments internally, within its own portfolio.  If the mutual fund has capital gains from these transactions, they are passed on to the mutual fund's shareholders in what's called a capital gain distribution.  Capital gain distributions are reported on a 1099-DIV.

[Xarax]

Thanks for the clarification between the two terms.  I learned something.  When I enter the amount in 2a my taxes go up accordingly as if I had sold the mutual fund and this distribution occurred on the same day as the transfer from what I can determine.  

But there is no way I had tens of thousands of dollars distributed internally within TRowePrice other than to record the transfer to the outgoing broker as a distribution.  The cost basis of the mutual fund transferred to the receiving broker which means I would have to pay capital gains tax twice if I actually sold the mutual fund.  How can this be? 

The transfer was not supposed to have generated any tax consequence.

This transfer happened mid-December.

[TomD8]

"But there is no way I had tens of thousands of dollars distributed internally within TRowePrice other than to record the transfer to the outgoing broker as a distribution. "

Then you are suggesting that the 1099-DIV you received from TRowePrice is incorrect.  I suggest you contact them directly with your concerns.

BTW, capital gains distributions can sometimes be quite substantial.   

[fanfare]

do you still have a balance at the old fund?

if you transferred on the ex-dividend day, you may find that distribution listed on 1099-DIV was left behind.