Why are capital gains being charged as income when I did not take the money out? It was reinvested into my mutual funds.

[SteamTrain · Accepted solution]

(For Funds not held in a retirement account)

Capital Gains distributions from Mutual Funds that are reinvested are treated as-if they were two steps.... you received the $$  (and yes...it is reported as income), and then you invested them.

As such, yes, they are added to taxable income but 1)  Box 2a amounts reported on a 1099-DIV are used in the special reduced capital gains tax calculations, and 2)  the new investments do add to your "basis" in the mutual fund they were re-invested into, reducing your basis in the future when you sell any.