Learn about cost basis, dividends, capital gains and tax-reporting requirements for a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. Access your clients’ tax forms in Client Accounts and visit the Tax Center for additional resources.
Clients have two types of transactions that are subject to tax reporting:
* Not applicable to shares sold or exchanged from American Funds U.S. Government Money Market Fund.
Dividends are a distribution of a portion of a fund’s earnings made to a client’s account. Dividends that are classified as “qualified dividends” may be subject to a lower tax rate.
When a fund sells securities at a profit, the sale creates a capital gain for the investor.
American Funds’ investment vehicles can realize two types of capital gains: short-term and long-term. Net short-term capital gains are distributed to investors as income dividends and are taxed at ordinary income tax rates. Long-term capital gain distributions are currently taxed at a maximum rate of 20%.*
* This rate does not include the 3.8% surtax applicable to net investment income for higher income taxpayers.
When an investor sells or exchanges shares for:
Form 1099-DIV reports these earnings under the account owner’s Social Security number (SSN).
Form 1099-B reports any gains or losses from the sale under the account owner’s SSN.
Tax forms are available online by mid-January and mailed to clients by January 31. Refer to the tax form schedule on the investor website for specific dates.
To view and print tax forms when they are available:
The cost basis of mutual fund shares is typically the purchase price, including any sales charges paid when the shares are purchased. The cost basis is used to calculate a client’s gain or loss on their investment.
The Internal Revenue Service (IRS) has several methods for determining the cost basis, and each has different tax implications. Capital Group will use the Average Cost method as the default method on all eligible accounts unless another method is requested.
Yes, if cost basis information is available. Capital Group tracks the cost basis in retail accounts on shares acquired after January 1, 2012. Any shares acquired before this date are considered non-covered, and the cost basis is unknown. Capital Group is not required to report cost basis for non-covered shares to the IRS.
In addition, money market funds that maintain a constant net asset value are not subject to cost basis regulations.
To access your client’s cost basis, log in to Client Accounts, locate the account and select the fund under Funds in this account.
Contact us to verify or change the cost basis method. Alternatively, complete the Cost Basis Update Request.
Review Tax Center FAQ for additional cost basis information.
Because the shares are never sold, there is no tax reporting when gifting shares; however, a gift tax may apply. Refer to Gift of shares for additional information.
Yes, investments in UGMA/UTMA accounts are considered gifts by the IRS and may be subject to gift taxes. Based on a contributor’s tax-filing status, the gift tax exclusion limits are:
Tax-filing status |
2025 limits |
2026 limits |
|---|---|---|
Single |
$19,000 |
$19,000 |
Married filing jointly |
$38,000 |
$38,000 |
The kiddie tax applies to a child who was either:
For tax year 2026, up to $1,350 of the child’s net unearned income is tax-free because of the child’s standard deduction. Generally, a second $1,350 of net unearned income is taxed at the child’s marginal tax rate (usually 10%). Any net unearned income over $2,700 is taxed using the brackets and rates that apply to trusts and estates, which can range from 10% to 37%.
Unearned income includes:
Applicable sources of net unearned income for children include UGMA/UTMA accounts.
Consult a tax advisor for more information about the kiddie tax.
For financial professionals only. Not for use with the public.
This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only.
The guidelines and procedures provided in the Account Resource Center may not apply to networked accounts or accounts not directly held by American Funds. The guidelines and procedures provided also apply only to those retirement accounts or Coverdell ESAs invested in American Funds with Capital Bank and Trust Company (CB&T) as custodian. The guidelines and procedures provided in the Account Resource Center do not apply to plans held in our retirement plan solutions — PlanPremier, PlanPremier-TPA or RecordkeeperDirect. Information on the Account Resource Center may change periodically, and previously printed information may not be current. Please refer to capitalgroup.com for the most current information available.
Financial professionals should always contact their back office to determine if there are any restrictions on the use of American Funds products, tools, services, websites and literature.
This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.