1099 Div is a document financial institutions use to report dividends and distributions to both the investor (that’s you) and the IRS. When you own dividend-paying stocks or a mutual fund that makes a capital gains distribution, you’ll probably receive IRS Form 1099-DIV in the mail. As with other tax forms, you’ll use the information it contains to complete your return.
The 1099-DIV has 15 boxes that may have values in them that must be carried over onto the taxpayer’s form 1040. Of these, there are 10 or so boxes that may have entries of importance to more than a minority of taxpayers. These are as follows:
Box 1a: Total Ordinary Dividend: These are all dividends from corporations or mutual funds (open end, closed end or Exchange Traded) holding corporate shares, and will include dividends subject to tax treatment as ordinary income and qualified dividends taxed at more favorable tax rates. Note that mutual funds that hold only bonds are included here even though technically what they distribute is interest paid on bonds, although it may also include capital gains from the sale of bonds.
Box 1b: Qualified Dividends: These are dividends paid from after-tax company earnings
Subtracting 1b from 1a will give the dividends that will be taxed as ordinary income. This will generally include REIT, BDC and ETN dividends as well as short term capital gains distributed from mutual funds.
Box 2a: All capital gains (except for short term capital gains from mutual funds). This will include long term capital gains that will be combined on Schedule D with capital gains and losses from the sale of investment assets or received from a partnership, to determine the net long term capital gains or losses to be carried over into line 13 of Schedule 1
Box 2b: Unrecaptured Section 1250 gains. This is the part of 2a that represents the ‘recapture’ of depreciation. Here is a simple example of a rental home bought and held for several year and then sold:
Box 2c: Section 1202 Gain. This is a rare form of capital gain generally limited to private ownership of originally issued common stock of a Qualified Small Business organized as a C-Corporation that is held at least 5 years before being sold. 50% to 100% of the gain is excluded from taxation depending on the year the stock was originally purchased.
Box 2d: Collectible Gains. These are also rare, but can be realized from capital gains distributed from precious metal or commodity ETFs organized as grantor trusts or from the auction sale of a piece of art or antique automobile held for more than one year and then sold for more than the collectible’s basis. These are also treated as capital gains for purposes of being offset by other capital losses.
Box 3: Non-Dividend Distributions. These are distribution in excess of the company’s earnings (including any retained earnings from previous years) and in excess of any realized capital gains. Often called ‘Return of Capital’, this is not taxed to the shareholder, but it must reduce the shareholder’s basis of the company. If the basis reaches zero, any addition amounts in box 3 must be declared on Schedule D as Long Term Capital Gain.
Box 4: Federal Income Tax withheld. Sometimes called ‘Backup Withholdings’, this is unusual except for shareholders, including foreign shareholders, who do not provide a valid Social Security Number or a Taxpayer ID number.
Box 5: Section 199A Dividends. These are new for 2018 under the Tax Cut and Jobs Act (TCJA), and represent the pass-through business income from REITs that is usually equal to box 1a minus anything in box 1b. Combining all REIT box 5 amounts is the total amount, plus or minus any positive or negative distributions from Master Limited Partnerships, that is eligible for the 20% 199A deduction. The amount is used in the worksheet for calculating the Qualified Business Income Deductions taken on line 9 of the form 1040.
Box 6: Investment Expenses. An amount here is rare and generally applies to private mutual funds or private BDCs incurring external expenses paid from the value of the fund. But under the TCJA this amount, at least for the individual filer, is no longer deductible as a miscellaneous itemized expense subject to the 2% of AGI limit.
Box 7: Foreign Taxes Paid. Holding foreign stock, either directly or through a mutual fund, may generate a foreign tax on foreign stock. This may be deducted as an itemized deduction or taken as a foreign tax credit on line 48 of Schedule 3 if it is less than $600 for married filing jointly, or less than $300 for single filers. If greater than this, then a form 1116 must be completed.
Box 9 and 10. Company liquidation proceeds. Very rare. Used to adjust the basis of the holding.
Box 11. Tax Exempt Interest. Usually paid from mutual funds and considered a dividend even though it is almost always interest from municipal bonds. Interest from General Obligation Municipal Bonds are not taxable but may be included in Modified Adjusted Gross Income for various calculations so must be entered on form 1040 line 2a
Box 12. Private Activity Bond Interest paid as a dividend usually from a mutual fund although it could come from individually held bonds. This is part of Box 11 that represents interest from non-government municipal bonds, sometimes referred to as ‘income bonds’. Like government issued general obligation muni bonds, the interest paid (mutual fund dividends) is not includable as income but this interest is used in the calculation of Alternative Minimum Tax.
Boxes 13-15. This is for state tax only when dividend amounts have been withheld for state tax.