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  • Ben February 7
  • msf February 7
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Tax puzzle/ qualified dividends

Ben
in Fund Discussions
IRS says the Qualified Dividend Worksheet may be used by those whose only capital gains are from distributions. It says nothing about capital losses.

I am puzzled. Maybe someone here has the facts as the IRS also contradicts itself in its instructions in various places.

My only 2024 capital gains are mutual fund distributions. I also have qualified dividends from mutual fund distributions. I have no capital gains from sale of assets. But I *do* have a capital loss from sale of assets (selling mutual fund shares, as it happens).

Am I permitted to use the Qualified Dividend Worksheet to figure my tax?

Comments

  • Ben
    Nobody knows?
  • msf
    I'm not sure where the instructions you mention in your first sentence come from. Here are some of the instructions for Line 16:
    Schedule D Tax Worksheet. Use the Schedule D Tax Worksheet in the Instructions for Schedule D to figure the amount to enter on Form 1040 or 1040-SR, line 16, if:
    • You have to file Schedule D, line 18 or 19 of Schedule D is more than zero, and lines 15 and 16 of Schedule D are gains; or
    • You have to file Form 4952 and you have an amount on line 4g, even if you don’t need to file Schedule D.
    But if you are filing Form 2555, you must use the Foreign Earned Income Tax Worksheet instead.

    [These are all unusual situations - so you likely don't have to use the Sched D worksheet]

    Qualified Dividends and Capital Gain Tax Worksheet. Use the Qualified Dividends and Capital Gain Tax Worksheet, later, to figure your tax if you don’t have to use the Schedule D Tax Worksheet and if any of the following applies.
    • You reported qualified dividends on Form 1040 or 1040-SR, line 3a.
    • You don’t have to file Schedule D and you reported capital gain distributions on Form 1040 or 1040-SR, line 7.
    • You are filing Schedule D, and Schedule D, lines 15 and 16, are both more than zero.
    Since you had a sale of assets, you have to file Schedule D. Assuming that you had net gains (subtracting your cap loss from your MF cap gains), then both line 15 (net long term gains) and line 16 (net cap gains) will be positive.

    In summary:
    - Don't have to use Sched D worksheet - check
    - Have positive numbers on Sched D lines 15 and 16 - check

    So you're supposed to use the Qualified Dividends and Capital Gains Worksheet.
  • Ben
    Thanks for taking the time to reply, MSF. I should have been clearer. When I say had a capital loss from sold assets I meant that lines 15 and lines 16 are both losses on my schedule D for 2024. That is less than zero.

    That's why I am asking. I know the instructions for line 16 say to use the QD worksheet if *any* of those 3 conditions apply, not if all apply. I reported qualified dividends on line 3a. So it would seem I can use the QD worksheet, which I would prefer to do. But elsewhere the IRS implies that this worksheet should be used only if lines 15 and 16 are positive. But it is implicit, not explicit.

  • msf
    Got it. You still use the QD worksheet as explicitly instructed on Line 22 of Schedule D.
    (That's in the Schedule itself, not in its instructions.)

    The way this works is that net cap losses cannot be used to offset qualified divs. So the QD worksheet excludes your net loss (in line 3 of the worksheet you put $0 for cap gains). Then you proceed normally with that worksheet, calculating your cap gains rate tax on just the qualified divs.

    You get to apply up to $3,000 of the loss against ordinary income. This comes from Line 21 in Sched D. The remainder is carried over to next year.
  • Ben
    Ah. Yes. thank you. Much appreciated.

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