Help me understand Undistributed Long Term Capital Gains on Form 2439 - broker just sent it

I just received a Form 2439 from my broker last week and I'm completely confused about these Undistributed Long Term Capital Gains. In Box 1, it shows $124.67 in capital gains and Box 2 shows I was taxed $26.18. From what I've read online, I'm supposed to subtract the tax from the total gains amount, so I need to increase my cost basis by $98.49. But honestly, I have no idea what that actually means in practice. I've got about $815 invested in this company, and if I increase my basis by $98.49, it would be around $913.49, which basically flips me from being slightly ahead to being in the red. Any help would be greatly appreciated! I've never dealt with this form before and my tax software doesn't seem to have clear guidance on handling undistributed capital gains.

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18 comments

Oliver Schulz

•8M

Those Form 2439s can definitely be confusing! What you're dealing with is likely from a mutual fund or REIT that earned capital gains but didn't distribute them to shareholders. Instead, they paid the tax on your behalf, but you still have to report it. Here's how it works in plain language: Even though you didn't receive these capital gains as cash, you're still considered to have earned them for tax purposes. You'll need to report the $124.67 as income on your tax return. The good news is you also get to claim the $26.18 tax that was already paid on your behalf as a credit. The cost basis adjustment is basically an accounting trick to make sure you don't get taxed twice on the same money when you eventually sell your shares. By increasing your cost basis from $815 to $913.49, you're recognizing that you've already been taxed on that $98.49 of value, so you shouldn't be taxed again when you sell.

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Oliver Schulz

•8M

Box 3 on Form 2439 represents unrecaptured section 1250 gain, which is a type of capital gain associated with depreciation on real estate. If you have an amount in Box 3, it's still part of your total capital gain in Box 1, but it may be taxed at a different rate (maximum 25% instead of the standard long-term capital gains rate). When completing your return, you'll need to include this amount on the appropriate line of Schedule D or Form 8949. Most tax software should handle this correctly if you enter all the information from your Form 2439.

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AstroAdventurer

•8M

I ran into this exact situation last year and it was super frustrating until I discovered taxr.ai (https://taxr.ai). It's basically this AI tool that can analyze your tax forms and explain them in regular human language. I uploaded my Form 2439 and it broke down exactly what I needed to do - report the full amount as income, claim the tax paid as a credit, and adjust my basis. The explanation was way clearer than what my broker provided, and it saved me from accidentally paying tax twice on the same money. It also walked me through exactly which forms I needed and where to put the numbers in my tax software. Made the whole process way less stressful!

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AstroAdventurer

•8M

Absolutely works with K-1s! Those are actually one of the more complicated forms, and the tool breaks down each box and explains what it means for your specific situation. It's especially helpful with those weird passive activity limitations and at-risk rules that come with K-1s. Regarding security, I had the same concern initially. They use bank-level encryption and don't store your documents after analysis. You can also black out any personal info before uploading if you're extra cautious. I just uploaded the form sections I needed help with rather than my entire return.

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Emma Wilson

•8M

Just wanted to follow up about taxr.ai - I decided to try it with my Form 2439 situation since I was totally lost. Wow, it actually worked really well! I was able to upload just the form (with my SSN blacked out) and it explained everything step by step. The guidance was super clear about how to report everything correctly in my tax software. It even explained why the cost basis adjustment matters for future sales. Now I finally understand what all these boxes mean and how they affect my taxes. Definitely saved me from making a costly mistake!

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Malik Davis

•8M

If you're still struggling with this Form 2439 issue and need to talk to someone at the IRS directly, I'd highly recommend using Claimyr (https://claimyr.com). I tried calling the IRS for weeks about a similar capital gains reporting question and kept getting the "due to high call volume" message. Claimyr got me connected to an actual IRS agent in about 20 minutes instead of the hours I was spending on redial. You can see how it works in their demo video here: https://youtu.be/_kiP6q8DX5c The agent I spoke with walked me through exactly how to handle my undistributed capital gains and where to claim the credit for tax paid. Completely worth it for the peace of mind knowing I was filing correctly.

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Malik Davis

•8M

It uses a callback system that continually redials and navigates the IRS phone tree for you. When they finally get through, they connect the call to your phone. You're actually speaking with legitimate IRS employees - they're just handling the frustrating wait and redial process for you. They don't provide tax advice themselves, they literally just get you connected to the actual IRS faster. You can verify you're speaking with a real IRS agent because they'll go through the standard identity verification process that the IRS uses.

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Ravi Gupta

•8M

I need to apologize to everyone here - especially to the person who recommended Claimyr. I was so skeptical I called it a scam, but after waiting on hold with the IRS for THREE HOURS yesterday and getting disconnected, I decided to try it out of desperation. It actually worked exactly as described. I got a call back in about 35 minutes, and it was definitely a real IRS agent (they verified my identity and had access to my tax records). The agent explained everything about Form 2439 and confirmed exactly how to handle the undistributed capital gains on my return. I've never been so happy to be wrong about something! Saved me hours of frustration and now I know for sure I'm filing correctly.

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GalacticGuru

•8M

Just to add some clarity - Form 2439 is related to regulated investment companies (mutual funds) or real estate investment trusts (REITs) that retain their long-term capital gains instead of distributing them to shareholders. The reason your cost basis increases is because you're being taxed on money you didn't actually receive. The basis adjustment prevents double taxation when you eventually sell your shares. Think of it this way: if you're taxed on $124.67 of gains but didn't get that money in your pocket, your investment effectively cost you that much more. That's why your basis goes up.

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GalacticGuru

•8M

You're exactly right - when you sell, you'll use the adjusted basis of $913.49 instead of $815. As for tracking, it depends on your broker. Some brokers automatically adjust your cost basis in their systems after receiving Form 2439 information, but many don't. I'd recommend checking your online brokerage account in about a month to see if they've updated it. If not, you'll need to maintain your own records. It's a good idea to keep a copy of the Form 2439 with your investment records so you have documentation for the basis adjustment if you're ever audited.

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Oliver Schulz

•8M

You don't attach Form 2439 to your tax return - you just use the information from it to complete your return. You should keep the form with your tax records for at least 3 years (the standard IRS audit timeframe), or ideally for as long as you own the investment since it affects your cost basis. Make sure you report the amount from Box 1 as capital gains on your return, claim the tax paid (Box 2) as a credit, and keep track of the basis adjustment for your own records. Most tax software has a specific section for entering Form 2439 information.

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