by Mike Godfrey
The IRS and the US Treasury Department on Thursday issued guidance to clarify that capital gain dividends received from a mutual fund in 2004 will be taxed at the new, lower capital gain rates enacted last year.
"Last year the President's Jobs and Growth Tax Relief Reconciliation Act of 2003 lowered the capital gains rates on dividends," explained Acting Assistant Secretary for Tax Policy Greg Jenner, adding that:
"These lower rates mean taxpayers will have more money to invest, save for their children's education or buy a home."
According to the Treasury, mutual funds with net capital gains may designate some of their dividends as "capital gain dividends," which are taxed to the fund's shareholders like long term capital gains. Since 1997, mutual funds' designations of capital gain dividends have included an additional designation of which rate applies to the dividend because long term capital gains from different sources have been taxed at different tax rates.
Concern had been expressed that the existing rules for dividend designation and the transition to the new, lower capital gain rates enacted last year might cause some 2004 capital gain dividends to be taxed to fund shareholders at the old, higher capital gain rates.
However, the guidance issued last week sought to clarify that this will not occur.
Source: LowTax.com
