Before taking any action based on the tax information provided, we recommend consulting your Financial Advisor. Specific questions regarding your personal income tax situation should be referred to your tax advisor.
- What is a capital gain?
- Why do the mutual funds distribute capital gains?
- What is the difference between short-term and long-term capital gains?
- When are taxes paid on capital gains distributions?
- What is "buying a dividend"?
- What is a cost basis?
- Where can I learn more about dividend dates and distribution amounts for BlackRock funds?
- If distributions are reinvested, are they still subject to taxes?
- Does BlackRock try to limit capital gain distributions?
- What is the difference between record date, ex-date and payable date?
- If a mutual fund's NAV has fallen this year, how does it distribute a capital gain?
- Why does a mutual fund's NAV drop when a distribution is paid?
- When is the Form 1099 sent to shareholders?
- How are distributions recorded on forms 1099-DIV?
- Who do I contact if my client has not received a 1099?
- Where can I find more information on BlackRock Funds?
A capital gain is the difference between the purchase price and the selling price of an asset (i.e., stocks, bonds, and mutual fund shares) which results in a profit. For example, if a stock for $100 is purchased and later sold for $120, the capital gain is $20. A capital loss would result from selling an asset at a lower price than the purchase price.
When a mutual fund realizes more gains than losses, mutual funds are generally required by law to distribute the net gains to shareholders by calendar year end. These distributions, which typically occur quarterly, semi-annually or annually, are made in order to satisfy such requirements.
It is important to note that these distributions are taxable to shareholders, unless the mutual funds are held in a 401(k) plan, IRA, 403(b) account or other tax deferred account. Investors in tax deferred products will not have tax consequences as a result of these distributions. Also, distributions are specifically exempt from taxes such as income from municipal bond funds being exempt from Federal taxes.
Short-term capital gains: These gains result from the sale of an investment held less than a year. A distribution of short-term gains by a mutual fund is taxed as ordinary income.
Long-term capital gains: These gains result from the sale of an investment held more than a year. A distribution of long-term gains by a mutual fund is taxed at the investor's capital gains tax rate.
Investors are required to include these amounts on their federal income tax return for the year when they are received.
"Buying a dividend" refers to purchasing a mutual fund just prior to a distribution by that fund. It is not advisable for an investor to purchase a mutual fund that will be held in a taxable account immediately prior to a distribution. A portion of the investment will be returned to the investor as a taxable distribution. The investor will incur a tax liability on a distribution without any benefit.
A mutual fund's cost basis is the cost of fund shares (determined by various means) used to help shareholders calculate the taxable gain or loss of their investment in the event of any fund share redemptions. For BlackRock funds held at the transfer agent, this information is included in our Quarterly Statements when available.
To learn more about dividend dates and distribution amounts, click here. For fund specific distributions, visit our mutual funds homepage and then select a fund to review its profile and view its distributions.
Yes, it is the shareholder's responsibility to pay taxes on the income and gains distributed by a mutual fund even if a shareholder decides to reinvest his distribution into the mutual fund for more shares, such distributions would be subject to taxes.
BlackRock manages the BlackRock mutual funds consistent with their investment objectives. Though we are mindful of the tax implication of capital gains on our shareholders, investment decisions take into account other factors as well and are based upon prudent portfolio management in accordance with the each fund's investment strategy.
The Record Date refers to the shareholders of "record" on this date who are entitled to the distribution
The Ex-date is the next date after record date on which, the net asset value (NAV) drops by the amount of the distribution. Those shareholders who reinvest their distributions receive additional shares.
The Payable Date is the date that payments are sent to shareholders that do not reinvest their distributions. Those shareholders who reinvest their distributions receive additional shares.
Even if a mutual fund's NAV has fallen during the year, it is still possible that securities sold by the mutual fund within the year resulted in a capital gain. For example, a security bought three years ago at $10 that appreciated and was sold this year at $20 will realize a $10 capital gain.
When profits from sales of securities exceed losses, they accumulate and contribute to the rise of the net asset value (NAV) of the fund. Since a portion of the NAV is being deducted and distributed to the shareholders, the NAV will drop by the distribution amount. For example, a fund's shares sell at an NAV of $10. If sales of the fund's securities have realized a profit of $2 a share during the year, a capital gain distribution of $2 will be deducted from the NAV on a specified date and on that date the fund share price will decline to $8.
This drop in NAV does not reflect a loss since the portion deducted from NAV is passed through to shareholders. Distributions do not impact a mutual fund's total return as they are taken into account as part of a fund performance.
Please keep in mind that the NAV will also reflect market activity. Distributions do not impact a mutual fund's total return.
A Form 1099-DIV is sent to shareholders by investment fund companies to provide a record of all taxable capital gains and dividends paid, including those that have been re-invested in a given taxation year. Tax Form 1099-B will also be sent, if the client has redeemed shares from their BlackRock mutual fund. Form 1099-INT is sent to clients who have received dividend distributions on municipal bond funds.
Mutual fund companies report dividends and short-term and long-term capital gains separately on Form 1099-DIV for the year when received. These amounts are reported to the IRS for tax purposes. Investors use Form 1099-DIV to help report income received from investments on their tax return each year.
The IRS does not require tax reporting on any taxable amounts less than $10 for a calendar year. So, first confirm with your clients if that is the case. If they did have a taxable event during the year over $10 and did not receive their 1099, they can contact BlackRock shareholder services at 877-ASK-BLK1 between the hours of 8 a.m. to 6 p.m. (ET), Monday through Friday.
For more information on BlackRock Funds, please contact BlackRock shareholder services at 877-ASK-1BLK.
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For this and more information on BlackRock funds, please view a prospectus. The prospectus should be read carefully before investing.
The information on this web site is intended for U.S. residents only. The information provided does not constitute a solicitation of an offer to buy, or an offer to sell securities in any jurisdiction to any person to whom it is not lawful to make such an offer.
The information that has been provided is not intended to serve as tax or investment advice. Each investor's tax and investment considerations may be different. BlackRock does not provide tax advice. If your clients have additional questions, please ask them to contact their tax consultant.