Form 1099-B reports money you received from selling an investment. Form 1099-DIV reports income an investment paid you while you still held it. That single distinction between the 1099-B and the 1099-DIV drives everything else: different boxes, different tax rates, and different lines on your return. A stock sale generates a 1099-B; the dividends that same stock paid before you sold it generate a 1099-DIV. Both forms arrive from your broker by mid-February, and misreading either one can mean overpaying taxes or triggering an IRS notice.
What Each Form Actually Reports
Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” documents every sale or disposition of a capital asset in your brokerage account during the year. That includes individual stocks, bonds, mutual fund shares, ETFs, options, futures, and cryptocurrency sold through a broker.1Internal Revenue Service. About Form 1099-B, Proceeds from Broker and Barter Exchange Transactions It is focused entirely on exits from investment positions.
The important boxes tell the financial story of each transaction. Box 1d shows the gross proceeds from the sale. Box 1e shows the cost basis (what you originally paid, adjusted for things like commissions or stock splits).2Internal Revenue Service. Instructions for Form 1099-B (2026) The difference between those two numbers is your capital gain or loss. Boxes 1b and 1c record when you bought and sold, which determines whether the gain counts as short-term or long-term.
Form 1099-DIV, “Dividends and Distributions,” reports income your investments paid you while you owned them. You will receive one from any payer that distributed at least $10 in dividends during the year.3Internal Revenue Service. About Form 1099-DIV, Dividends and Distributions It covers dividends from stocks, mutual funds, ETFs, REITs, and money market funds. Nothing on this form has to do with selling. You could hold a stock for decades and receive a 1099-DIV every year without ever triggering a 1099-B.
The 1099-DIV has more moving parts than most people expect. Box 1a is total ordinary dividends. Box 1b breaks out the portion that qualifies for lower tax rates. Box 2a reports capital gain distributions from mutual funds or REITs, which arise when a fund manager sells profitable positions inside the fund and passes the resulting gains through to shareholders. Box 3 reports non-dividend distributions (return of capital), which are not income at all but a reduction of your cost basis in the security.4Internal Revenue Service. Topic No. 404, Dividends and Other Corporate Distributions Once your basis has been reduced to zero, further return-of-capital payments become taxable capital gains. Box 5 reports Section 199A dividends, which are ordinary REIT dividends that may entitle you to a 20% qualified business income deduction.5Internal Revenue Service. Instructions for Form 1099-DIV (Rev. January 2024) That deduction is available at any income level and does not require you to itemize.6Internal Revenue Service. Qualified Business Income Deduction Skip Box 5 and you leave a tax break on the table.
How Each Form Is Taxed
The holding period on your 1099-B determines everything. A security held for one year or less produces a short-term capital gain, taxed at ordinary income rates that go as high as 37% for tax year 2026.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A security held for more than one year produces a long-term capital gain, taxed at preferential rates of 0%, 15%, or 20% depending on your taxable income and filing status.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses The difference is substantial. A single filer earning $150,000 in 2026 would pay 24% on a short-term gain but only 15% on a long-term gain from the same stock.
The 1099-DIV splits along a similar line, but the trigger is different. Ordinary dividends in Box 1a are taxed at your marginal ordinary income rate, the same rates that apply to wages and short-term capital gains. Qualified dividends in Box 1b receive the same preferential rates as long-term capital gains: 0%, 15%, or 20%. To qualify, you must have held the stock for more than 60 days during the 121-day window that begins 60 days before the ex-dividend date.9Legal Information Institute. 26 U.S.C. 1(h)(11) – Dividends Taxed as Net Capital Gain Most buy-and-hold investors meet this without thinking about it. Traders who flip stocks quickly sometimes do not, and their dividends get bumped into the higher ordinary rate.
Capital gain distributions in Box 2a are automatically treated as long-term gains, taxed at the preferential rates, even if you bought the fund six months ago. That surprises people in strong market years when funds have done heavy internal rebalancing.
Why Losses Matter More on a 1099-B
One of the biggest practical differences between the two forms is what happens when investments lose money. You cannot use a disappointing dividend to reduce your tax bill, but you can use a losing stock sale to wipe out a winning one. The netting happens on Schedule D: short-term gains against short-term losses, long-term gains against long-term losses, and then the two results against each other.
If your losses exceed your gains for the year, you can deduct up to $3,000 of the net capital loss against ordinary income ($1,500 if married filing separately).10Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses Any remaining unused loss carries forward to future years indefinitely.8Internal Revenue Service. Topic No. 409, Capital Gains and Losses Investors with large realized losses sometimes take years to fully use them up. Losing track of a carryforward is a common and costly mistake.
The 3.8% Net Investment Income Tax
Both forms can trigger an additional 3.8% surtax that investors routinely forget. The net investment income tax (NIIT) applies to individuals whose modified adjusted gross income exceeds $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).11Office of the Law Revision Counsel. 26 U.S. Code 1411 – Imposition of Tax The tax is calculated on the lesser of your net investment income or the amount your MAGI exceeds the threshold. Capital gains from your 1099-B, dividends from your 1099-DIV, and interest income all count. These thresholds are not adjusted for inflation, so more taxpayers cross them each year.
When NIIT applies, the effective top rate on long-term capital gains and qualified dividends climbs from 20% to 23.8%, and the effective top rate on short-term gains and ordinary dividends climbs from 37% to 40.8%.
Where Each Form Goes on Your Return
The two forms follow different paths through your return, and mixing them up is one of the more common filing errors.
Every sale on your 1099-B gets entered on Form 8949, which separates transactions by holding period and by whether the broker reported basis to the IRS.12Internal Revenue Service. Instructions for Form 8949 Once you have listed and totaled each category, the results flow to Schedule D, which produces the final capital gain or loss number that hits your Form 1040.
The 1099-DIV splits across several destinations. If your total ordinary dividends across all 1099-DIVs exceed $1,500, you must itemize each payer on Schedule B.13Internal Revenue Service. About Schedule B (Form 1040), Interest and Ordinary Dividends Below that threshold, you report the total directly on Form 1040. Qualified dividends from Box 1b go on a dedicated line and are taxed using the Qualified Dividends and Capital Gain Tax Worksheet. Capital gain distributions from Box 2a flow to Schedule D but skip Form 8949 entirely, because they are already classified as long-term. Section 199A dividends from Box 5 are claimed on Form 8995 or 8995-A, and the resulting deduction flows to Line 13 of your Form 1040.
Common Trouble Spots
Cost basis is where 1099-B problems usually start. Box 3 tells you whether a security is “covered,” meaning your broker is legally required to track and report the basis to the IRS. Individual stocks acquired on or after January 1, 2011 are covered; mutual fund and DRIP shares acquired on or after January 1, 2012 are covered; debt instruments and options acquired on or after January 1, 2014 are covered.14Internal Revenue Service. Stocks (Options, Splits, Traders) 1 For non-covered securities, your broker may leave Box 1e blank, and if you cannot substantiate the basis yourself, the IRS will treat it as zero and tax the entire sale as gain. If you own older investments and have lost your original purchase records, sort that out before you sell.
Wash sales create the other frequent snag. If you sell a security at a loss and buy a substantially identical one within 30 days before or after the sale, the loss is disallowed for that year and reported in Box 1g.15Internal Revenue Service. Case Study 1 – Wash Sales The disallowed amount gets added to the basis of the replacement security, so the benefit is deferred rather than lost. Your broker handles this within a single account, but if you hold the same security across accounts at different brokers, neither may see the full picture, and you may need to make manual adjustments on Form 8949.
Errors on either form can be corrected. If your 1099-B reports an incorrect basis, fix it on Form 8949 using adjustment code “B” in column (f) and record the correction in column (g). If it misclassifies the holding period, use adjustment code “T” and report the transaction in the correct section of the form.16Internal Revenue Service. Form 8949 Codes For a 1099-DIV error, contact the broker and request a corrected form; filing with numbers that do not match what the broker reported will almost certainly generate a notice. If a corrected form arrives after you have filed, file an amended return on Form 1040-X.
The IRS electronically matches every 1099-B and 1099-DIV issued by brokers against what you report. Unreported or mismatched numbers generate an automated CP2000 notice, which assumes you owe the maximum tax because it does not account for cost basis or applicable deductions. Respond quickly with documentation and the issue usually resolves; ignore it and penalties and interest accrue on a balance you may not actually owe.