Capital gains on investment account

[jumattb29]

Hello!  I've had one investment account for multiple years with Fidelity.  For the entire 2022 year, I have not contributed any additional money into that account.  All the money in that account is invested in mutual funds.  Throughout the entire year, I did not buy or sell anything from that account.  I've basically left it alone.

Unsurprisingly, at year end, that same investment account's balance is lower than what it started at in the beginning of 2022.

I did receive dividends at the end of the year which were automatically reinvested on December 28th.  The tax form is showing I have significantly high capital gains that I'll have to pay long term cap gains on for that same investment account. 

How would this possible?

[leeloo]

You, yourself, do not report the transactions within a Mutual Fund. The broker will a send any capital gains distributions on a 1099-Div. If you were to sell the Mutual Fund, then you would report the gain or loss.

A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management.

You own shares in the mutual fund but the fund owns capital assets, such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for you is to sell these assets at a gain.

If the mutual fund held the capital asset for more than one year, the nature of the income is capital gain, and the mutual fund passes it on to you as a capital gain distribution. Form 1099-DIV, Dividends and Distributions, distinguishes this from other types of income, such as ordinary dividends.

Consider capital gain distributions as long-term capital gains no matter how long you've owned shares in the mutual fund.

Report the amount shown in box 2a of Form 1099-DIV on line 13 of Schedule D (Form 1040), Capital Gains and Losses. If you have no requirement to use Schedule D (Form 1040), report this amount on line 13 of Form 1040, U.S. Individual Income Tax Return, and check the box, or on line 10 of Form 1040A, U.S. Individual Income Tax Return. Review the Instructions for Form 1040and the Instructions for Form 1040A for more information.

https://www.irs.gov/faqs/capital-gains-losses-and-sale-of-home/mutual-funds-costs-distributions-etc/... 

[SteamTrain]

The dividends & capital gains distributions that Fidelity did at the end of the year (even though you did no action yourself) may certainly cause Cap Gains calculations.   The fact that you re-invested-rolled back those distributions is immaterial. Those reinvestments are treated as-if you received the $$, then bought more.  But the $$ re-invested do add into yoru basis for that mutual fund, that you will not be taxed on if you sell the mutual fund in the future.

Mutual Fund distributions normally are sent to you on a 1099-DIV form.

Anything in box 2a is a LT Cap Gain, and taxed as such at whatever LT Cap gains rates your total tax picture puts you into.

Anything in box 1a,1b is either a dividend.....or a ST gain distribution from the mutual funds, that is treaded as if a dividend.