29 Jan How are ‘distributions’ from my investments taxed?

Q. As tax season approaches, my question involves capital gains “distributions,” specifically. Am I correct in regarding these fully subject to my marginal tax rate rather than the more favorable capital gains rate of 15 or 20%?
— Taxpayer

A. We’re glad you’re starting to pay attention to your tax return.

The good news is that you are incorrect.

Capital gains distributions received from mutual funds are treated as long-term capital gain income, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.

That means they are eligible for preferential tax rates of either 0%, 15% or a maximum of 20% depending on your overall income, he said. That compares with regular tax rates, which can be as high as 37%, Becourtney said.

“If you have capital losses, the capital gains distributions can be offset against the losses,” he said. “Again, depending on your overall income, you may also be subject to an additional 3.8% Medicare tax on Net Investment Income reported on Form 8960.”

Good luck with your returns.

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This story was originally published in January 2026. 

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