Tax Center FAQs

*This rate does not include the 3.8% surtax applicable to net investment income for higher income taxpayers.

When mutual funds sell securities, they typically realize gains or losses. If gains exceed losses, most funds distribute their net gains to their investors before the end of the calendar year. These distributions, which typically occur once or twice a year, are made primarily for tax reasons including satisfying federal excise tax rules.

Capital gains are paid when the overall holdings within a fund are sold and result in a realized profit. For some funds, profits from sales are offset by losses from other sales, causing the overall holdings within the funds to not pay a capital gain.

For additional information, refer to the Taxes and Distributions section in a fund's Statement of Additional Information (also known as Part B).

When a fund distribution (capital gain, dividend, etc.) occurs, the money leaves the fund on the calculation date and causes the share price to drop, which will lower the account value. On the payment date, the distribution will be reflected in the account value.

Example: Say a fund share sells at the NAV of $10. If sales of the fund’s securities have resulted in the fund making a capital gain distribution of $2 per share during the year, $2 will be paid to investors on the fund’s payment date. The fund share price will decline to $8 on the record date as a result of the distribution.  

No. Considering the above example, investors still have $10 in value — $8 in the fund’s NAV, and $2 in their pockets or reinvested in the fund. For capital gains distributions that are automatically reinvested into the account, the additional fund shares are purchased at the lower price of $8 per share. These additional shares compensate for the drop in the NAV, so the total value of their accounts doesn’t change. (Of course, if there is a decline in the market at the same time, they may still see a drop in the total value of their accounts.)

Example: Let’s say there are 100 shares in an investor’s account. At the NAV price of $10 per share, the account value is $1,000. If the fund pays a capital gain distribution of $2 per share, the NAV drops to $8, and the original 100 shares are now worth $800. However, if capital gain distributions are reinvested, they will automatically buy $200 worth of shares — at $8 per share. The investor can add 25 shares to his or her account, which now contains 125 shares worth $8 each. That’s a total of $1,000, which was the original account value before the capital gain distribution was paid.

When the value of a fund holding increases, the fund has an unrealized gain until the security is sold. Once this security is sold, the fund realizes the gain and must pay a distribution unless the gain is offset by capital losses. Consequently, a fund’s capital gain distribution in a particular year is a result of the sale of securities that may have appreciated in value, perhaps during prior years when the fund’s returns were positive.

We are mindful of the taxes our investors pay on capital gain distributions. While taxes are an important consideration, meeting the funds’ investment objectives is our primary goal. Therefore, securities will typically be sold when it is deemed appropriate for investment reasons.

Capital gain distributions paid by a fund should not be confused with capital gains you may realize when you sell or exchange mutual fund shares. If you sold or exchanged fund shares, your capital gain or loss depends on your cost basis for those shares.

Capital gain distributions (shown in Box 2a of your Form 1099-DIV) are taxed as long-term capital gains. The tax rate for long-term capital gain distributions (assets held for more than 1 year) is determined by an individual’s taxable income and filing status. The applicable rates are 0%, 15%^* and 20%.^*

Short-term capital gain distributions (assets held for 1 year or less) are subject to tax at ordinary income rates.

For state taxation, the treatment of capital gain distributions varies from state to state and may not follow the federal income tax treatment. Consult your tax advisor or your state tax authority for more information about state income tax reporting of these distributions.

*This rate does not include the 3.8% surtax applicable to net investment income for higher income taxpayers.

Capital gain distribution amounts can be found in Historical Prices and Historical Distributions, beginning with each fund’s record date.

The record date is the date when investors in a particular fund are entitled to receive a fund distribution.

For the American Funds, distributions are based on fund shares owned at the beginning of the day of record date.

For the Capital Group ETFs, distributions are based on fund shares owned at the end of the day of record date.

Generally, withdrawals from retirement accounts and annuities are taxed at ordinary income tax rates. Thus, the lower rates on long-term capital gains do not apply to withdrawals from these accounts.

Investors are required to include these amounts on their annual federal and state (if applicable) income tax returns. This is true even if they reinvested their capital gain distributions or if the fund’s share price declined during the year.

Individuals will need Form 1040 and related schedules.

You can order IRS forms and schedules by calling (800) 829-3676 or downloading them from the Forms & Publications section at irs.gov.

Yes. A mutual fund generally can pass on the qualified dividends it receives.

Investors will receive this information on Form 1099-DIV, mailed in late January of every year.

No. A mutual fund may also pay income dividends that are not qualified, consisting of nonqualified corporate dividends (e.g., dividends paid by certain foreign corporations), interest income and net short-term capital gains.

The tax rate for qualified dividends is determined by an individual’s taxable income and filing status. The applicable rates are 0%, 15%^* and 20%.^*

Dividends that are not qualified dividends are taxed at the appropriate marginal tax rate for ordinary income.

*This rate does not include the 3.8% surtax applicable to net investment income for higher income taxpayers.

Generally, withdrawals from retirement accounts and annuities are taxed at ordinary income tax rates. Thus, the lower rates on qualified dividends do not apply to withdrawals from these accounts. Nevertheless, retirement accounts and annuities remain attractive investment vehicles because earnings on these accounts can compound tax-free until withdrawn.

Individuals will need Form 1040 and related schedules.

You can order IRS forms and schedules by calling (800) 829-3676 or download them from the Forms & Publications section at irs.gov.

A return of capital is created when a fund pays more in dividend distributions to investors than it earned on a tax basis during the fund’s fiscal year. This amount will be reported in box 3 of Form 1099-DIV as a nondividend distribution. This amount is not taxable as income; however, it will reduce the investor’s cost basis. A return of capital that exceeds an investor’s cost basis must be reported as capital gains.

A fund may distribute return of capital in order to pay dividends consistent with its respective yields. Only a limited number of fixed income American Funds are likely to pay return of capital distributions.

Investors will receive this information on Form 1099-DIV, mailed in late January of every year. The return of capital information will also be disclosed on our website.

While a return of capital is not taxable as income, it will reduce the investor’s cost basis. A return of capital that exceeds an investor’s cost basis must be reported as capital gains.

Most tax forms are mailed in late January. Keep in mind that not all accounts will generate a tax form. Tax forms are not generated if a reportable event did not take place in the tax year. If you made a contribution to an IRA, you will receive Form 5498 in late May to reflect contributions made up to the tax filing deadline in April. Investors aren't required to file Form 5498 with their tax return.

See Tax Forms you may receive for mailing dates and other detailed information, including applicable account types by tax form. Consider enrolling in paperless delivery of tax forms to receive notifications as soon as they’re generated.

For tax planning purposes, you can see year-to-date dividends and capital gains on your quarterly statements under Activity Detail for each of your funds.

Our website identifies the available tax forms for each fund you own. If you own multiple funds in the same account type, the information is combined onto one tax form. While it’s important to be aware of each of the funds in your account with reportable information, you can obtain all of your funds’ information on one tax form.

Go to Statements & Tax Forms anytime to download your available tax forms. Tax forms are stored by tax year and not the calendar year they’re generated. To see when the current year’s forms will be available, review the Tax form schedule.

Please be aware if there was not a reportable transaction for the given year, a tax form will not be generated for the account.

Yes. To sign up, first log in to your account. At the top of the Your Portfolio page, click the “Go Paperless” link to view and update options.

You will receive an email notification as soon as documents are available. See a sample email notification. 

To download available tax forms, log in to your account and go to Statements & Tax Forms. Tax forms are stored by tax year and not the calendar year they’re generated. To see when the current year’s forms will be available, review the Tax form schedule.

The amount of distributions paid by the fund during its fiscal year may be more than the amount the fund earned. The excess, if any, is characterized as a return of capital (ROC) and reflected on Form 1099-DIV as nondividend distributions.

These are the dividends eligible for the 20% qualified business income deduction under Section 199A when paid to an individual taxpayer who meets a holding period requirement. These dividends are attributable to qualified real estate investment trust (REIT) dividends received by the fund.

Mutual funds are often required to pay foreign taxes on earnings from their investments outside the United States. You may claim a foreign tax credit or deduction for your share of the foreign taxes paid by these funds.

The American Funds Tax-Aware Conservative Growth and Income Portfolio is composed of both taxable funds and nontaxable funds.

IRA distributions, even if all or part of the distribution is rolled back in, are required to be reported on Form 1099-R.

Form 5498 reflects contributions, including rollovers, made to IRA accounts. Generally, the amount rolled over will not be subject to taxes or an early distribution penalty.

Since you have until the tax filing deadline in April to make IRA contributions, Form 5498 is not sent until late May. As a reminder, you are not required to attach a copy of Form 5498 to your income tax return. For rollover information, you can also refer to your year-end statement or transaction history.

Refer to your tax advisor for information on how to report distributions and rollovers on your income tax return.

Since you have until the tax filing deadline in April to make contributions to IRAs and Education Savings Accounts (ESAs), we must wait until after the tax filing deadline to send these forms. Form 5498-ESA is sent in April and Form 5498 (for IRAs) is sent in May. As a reminder, you are not required to attach a copy of Form 5498 or Form 5498-ESA to your income tax return.

No. Broadly speaking, the IRS regulations apply to taxable sales and exchanges, which exclude sales and exchanges in tax-favored accounts, such as retirement and 529 accounts. In addition, money market accounts that maintain a constant net asset value are not subject to the cost basis regulations.

When available, cost basis information is included on the Form 1099-B mailed to you in late January. You may also go to Statements & Tax Forms to download your Form 1099-B (if available). Tax forms are stored by tax year and not the calendar year they’re generated. To see when the current year’s forms will be available, review the Tax form schedule.

Yes. Reinvested dividends and capital gains are considered additional purchases made at the net asset value share price on the day the reinvestment occurred.

We generally cannot determine the average cost basis for accounts opened on or before December 31, 1983, and for accounts with noncovered shares acquired by transfers.

If you select the specific lot identification method for covered shares, we will not be able to provide average cost information for the noncovered shares.

We provide several IRS-approved methods for determining your cost basis on covered shares — each with different tax implications.

Please consult your tax advisor to determine which method should be considered for your individual tax situation.

The IRS website has many cost basis resources, including:

• Mutual Funds (Costs, Distributions, etc.)
• Publication 550: Investment Income and Expenses
• Instructions for Form 1099-B

The regulations make the distinction between covered and noncovered shares in a taxable account.

• Covered shares are any shares acquired on or after January 1, 2012. The IRS phased in regulatory changes related to cost basis in 2012. As a result, we are required to report the cost basis for any sales or exchanges of covered shares to you and the IRS.
• Noncovered shares are any shares acquired before January 1, 2012, and any shares for which cost basis is unknown. We are not required to report cost basis for these shares to the IRS.

Noncovered shares will be redeemed before covered shares unless you select the specific lot identification method and identify covered shares to be redeemed.

No. Each taxpayer’s situation is unique, so we encourage you to consult your tax advisor, investment professional or the IRS to determine which cost basis method to select.

The Specific Lot Identification method requires that you identify the specific shares you want to sell or exchange each time you want to make a sale or exchange. We recognize, however, that there may be situations where investors don’t specify the shares they want to use. In such instances, we ask investors to designate a secondary method we can use to make the sale or exchange. If an investor has not set up a secondary method, we’ll use First In, First Out as the default secondary method.

For most accounts, we’ve traditionally used the Average Cost method for cost basis reporting, and we’ll continue to use that method for your noncovered shares. If you have been using a method other than Average Cost, you can continue to use that method for your noncovered shares. If, however, you have used Average Cost for your reporting to the IRS in the past, it is our understanding that the IRS requires you to continue using Average Cost for noncovered shares going forward unless you received permission from the IRS to use another cost basis method. Please consult your tax advisor if you have questions about your individual situation.

When shares are sold or exchanged, the capital gain or loss is the difference between the proceeds from the sale or exchange and the cost basis of the shares.

Even though we will report cost basis for the sale or exchange of covered shares to you and to the IRS, you will be responsible for reporting any capital gain or loss information for both covered and noncovered shares to the IRS.

Whether you purchased your shares directly or through reinvestment, the length of time you owned the shares — their holding period — determines whether their gain or loss is considered long- or short-term.

• Long-term: shares held for more than one year
• Short-term: shares held for one year or less

Special rules apply to losses from the sale of shares held six months or less if you received capital gain distributions on those shares. Please consult your tax advisor for more information.

No. We do not report cost basis information for noncovered shares to the IRS.

You can find cost basis information for your covered shares on your quarterly shareholder statements and on Form 1099-B.

If you provided us with cost basis information for your noncovered shares, we will report this information on your quarterly shareholder statements and on Form 1099-B. However, we cannot guarantee the accuracy of cost basis information provided by you.

To view your cost basis information or change your cost basis method, log in to your account and go to Profile & Settings.

The cost basis information for covered shares generally transfers. The cost basis information for noncovered shares, however, is not required to be transferred with shares.

Yes, assuming that we maintained a cost basis for the noncovered shares when originally acquired, and we receive cost basis information on the transferred noncovered shares.

The rules require us to track and report to the IRS cost basis for covered shares that are gifted or inherited. When noncovered shares are transferred, they remain noncovered. When covered shares are transferred, they remain covered if we receive the information required to calculate the cost basis.

In general, a wash sale occurs if you sell or exchange fund shares at a loss and, during the 61-day period beginning 30 days before the sale or exchange, you purchase the same fund shares, regardless of the account. The loss is not allowed for tax purposes and must be added to the cost basis of the repurchased shares. The regulations require us to track wash sales separately for covered and noncovered shares, and within the same fund and share class. As was the rule prior to the regulations, investors must apply the wash sales rules across all of their accounts in the same fund.

If within 90 days of redeeming shares you purchase shares in the same fund or another one of the American Funds (except American Funds U.S. Government Money Market Fund), and you notify us that you're using the right of reinvestment, the purchase may be made without a sales charge. Any sales charge on the shares initially purchased may not be included in the basis of the shares redeemed if the subsequent purchase occurs before February 1 of the following year. Such sales charge must be added to the cost basis of the newly acquired shares.

The regulations require us to apply the load deferral rules only within the same fund and share class. As was the rule prior to the regulations, you must apply the load deferral rules across all American Funds.

For example, assume an investor purchases The Growth Fund of America® on March 5, with a sales charge and sells The Growth Fund of America on April 12. Further assume that the investor uses the right of reinvestment to acquire shares in The Income Fund of America® on July 6, without a sales charge. Although we’re not required to apply the load deferral rules because the later purchase was in a different fund, the investor is required to apply the load deferral rules. The sales charge paid for The Growth Fund of America shares may not be included in the basis of The Growth Fund of America shares sold on April 12. Instead, the sales charge is added to the basis of The Income Fund of America shares acquired on July 6.