What Is 1099-DIV Box 2f? Section 897 Capital Gain

Box 2f on Form 1099-DIV reports the Section 897 capital gain — the slice of your capital gain distributions from a REIT or a regulated investment company that came from selling U.S. real property interests.¹ If you’re a U.S. citizen or resident, the number is informational and doesn’t change what you owe. If you’re a nonresident alien or foreign corporation, it flags income that carries withholding and separate reporting under the Foreign Investment in Real Property Tax Act (FIRPTA).

What the Number Represents

Section 897 of the Internal Revenue Code treats a foreign person’s gain from selling a U.S. real property interest as if it were income from a U.S. trade or business, so the gain gets taxed here rather than escaping U.S. tax the way most foreign capital gains do.² A U.S. real property interest includes land, buildings, mines, wells, and other natural deposits in the United States or the U.S. Virgin Islands, along with stock in domestic corporations that qualify as U.S. real property holding corporations.

Most foreign investors don’t own that real estate directly. They own it through REIT shares or mutual funds. When one of those funds sells a U.S. property and passes the gain through to shareholders, a look-through rule treats the distribution as if the foreign shareholder had sold the underlying property personally. Box 2f is how the fund reports the size of that look-through slice for capital gain distributions. Its companion, Box 2e, does the same job for ordinary dividends attributable to Section 897 gains.

How Box 2f Fits With Box 2a

Box 2f is a subset of Box 2a, not an addition to it. Box 2a reports your total capital gain distributions for the year, and the IRS instructions tell payers to include the Box 2f amount inside that total.¹ The same relationship holds between Box 2e and Box 1a for ordinary dividends. So the Box 2f figure isn’t extra income to add somewhere. It’s a labeled portion of what’s already in Box 2a, set apart so foreign shareholders and the IRS can identify the FIRPTA piece.

What U.S. Taxpayers Do With Box 2f

For a U.S. citizen or resident, the practical answer is: nothing special. The IRS doesn’t even require payers to complete Boxes 2e and 2f for U.S. individual recipients.¹ Many brokerages fill them in anyway, which is why the box shows a number on plenty of 1099-DIVs sent to domestic taxpayers.

You report the Box 2a total on Schedule D or directly on Form 1040 the way you would any capital gain distribution from a fund. The Section 897 classification doesn’t change your rate, your form, or your bottom line. Section 897 exists to reach foreign investors who would otherwise owe no U.S. tax on real property gains; it has no independent effect on someone already taxed on worldwide income.

What Box 2f Does for Foreign Investors

For nonresident aliens and foreign corporations, Box 2f is where the tax consequences actually sit. The amount is treated as gain from a direct sale of U.S. real property, which makes it effectively connected income. For a foreign individual, that means graduated U.S. tax rates rather than the flat 30% rate that normally applies to passive investment income of foreign persons.² Tax treaties generally can’t reduce the rate, because the gain is recharacterized as business income rather than investment income.

Foreign individuals report the gain on Form 1040-NR. The instructions direct these taxpayers to report U.S. real property dispositions on Schedule D, and note that the gain may also be subject to the alternative minimum tax.³

Withholding on the Distribution

Section 1445 of the Internal Revenue Code requires withholding on dispositions of U.S. real property interests by foreign persons, and the general rate is 15% of the amount realized.⁴ When the gain reaches a foreign shareholder through a REIT or RIC, the fund or its paying agent handles the withholding before the distribution goes out. Foreign corporations that distribute a U.S. real property interest withhold at 21% of the recognized gain.⁵ The withheld amount isn’t the final tax. It functions like an estimated payment, and any excess over the actual liability comes back as a refund on the foreign shareholder’s U.S. return.

Ownership Thresholds That Turn the Rule Off

Not every foreign shareholder is caught by the look-through. If a foreign individual or foreign corporation owns 5% or less of a class of stock that is regularly traded on a U.S. exchange, distributions are not treated as FIRPTA gain and instead face the standard 30% (or treaty-reduced) rate for ordinary dividends.² For REITs, the threshold is higher: a foreign shareholder must own more than 10% of the REIT’s stock before the look-through kicks in. Most small foreign investors in large publicly traded REITs and index funds see a Box 2f number on their form but fall under the exception.

Qualified Foreign Pension Funds

Qualified foreign pension funds and their qualified controlled entities are fully exempt from Section 897. Their gains from U.S. real property interests are not treated as effectively connected income, and distributions attributable to those gains are not subject to FIRPTA withholding, provided the fund meets the requirements for organization, beneficiaries, and holding period.⁶

Boxes People Confuse With 2f

Box 2f isn’t about tax-exempt interest. Exempt-interest dividends from municipal bond funds appear in Box 12, and specified private activity bond interest appears in Box 13.⁷ If you’re trying to figure out state taxation of municipal bond fund income, Box 12 is where to look.

Box 2e is the closer relative. It reports Section 897 ordinary dividends, while Box 2f reports the capital gain portion. Both follow the same look-through rule and the same ownership thresholds, but they flow to different lines on a foreign filer’s return because ordinary income and capital gains are taxed at different rates.

1
Internal Revenue Service. Instructions for Form 1099-DIV
2
Office of the Law Revision Counsel. 26 U.S. Code 897 – Disposition of Investment in United States Real Property
3
Internal Revenue Service. Instructions for Form 1040-NR (2025)
4
Office of the Law Revision Counsel. 26 U.S. Code 1445 – Withholding of Tax on Dispositions of United States Real Property Interests
5
Internal Revenue Service. FIRPTA Withholding
6
Federal Register. Exception for Interests Held by Foreign Pension Funds
7
Internal Revenue Service. Form 1099-DIV