U.S. · Form 1099-R box 3
1099-R box 3 capital gain.
The IRS formula for the pre-1974 capital gain portion, with a calculator.
Box 3 is a part of box 2a, not an addition to it. It is filled in for two situations: a charitable gift annuity amount taxable as capital gain, and lump-sum distributions from qualified plans to participants born before January 2, 1936 (or their beneficiaries), where the capital gain is the total taxable amount multiplied by months of active participation before 1974 over total months of active participation.
Figure the box 3 fraction
Result
Box 3 at a glance
| Topic | What the IRS instructions say |
|---|---|
| Where it fits | If any amount is taxable as a capital gain, report it in box 3. The amount is included in box 2a. |
| Special rule: who | Participants born before January 2, 1936, or their beneficiaries. |
| Special rule: which distributions | Lump-sum distributions from qualified plans only. Enter the full amount eligible for the capital gain election. Do not complete box 3 for a direct rollover. |
| Counting months before 1974 | Count 12 months for any part of a calendar year in which the employee actively participated. |
| Counting months after 1973 | Count 1 month for any part of a month in which the employee actively participated. |
| When active participation ends | At the earliest of the month of the lump-sum distribution, separation from service (for an employee other than a self-employed person or owner-employee), death, or, for a self-employed person or owner-employee, the first month of disability. |
| Step 1: total taxable amount | Total distribution, less the current actuarial value of any annuity, less employee contributions or designated Roth contributions (minus amounts previously distributed that were not includible in income), less net unrealized appreciation in employer securities that was part of the distribution. |
| Step 2: capital gain | Total taxable amount × (months of active participation before 1974 ÷ total months of active participation). |
| Charitable gift annuity | Report in box 3 any amount taxable as a capital gain, the total distributed in box 1, the taxable amount in box 2a, any nontaxable amount in box 5, and code F in box 7a. |
How the fraction works
The capital gain election in these instructions is tied to participation before 1974. The payer measures that part by time, not by dollars. Years before 1974 are counted generously at 12 months for any part of a year, while later years are counted by the month. That asymmetry is in the IRS text and is why a participant who joined in mid-1973 gets a full 12 months for 1973.
Worked example
A participant joined a plan in mid-1972 and received a lump sum at the end of 1990. Calendar years 1972 and 1973 count as 24 months. From January 1974 through December 1990 is 17 years, or 204 months, for a total of 228 months. If the total taxable amount after the Step 1 subtractions is $91,200, box 3 is $91,200 × 24 ÷ 228 = $9,600. The dollar and date figures are illustrative; the method is the IRS’s.
What this page does not do
It does not tell you whether you can use the capital gain election or the 10-year tax option, or how either affects your return. That is Form 4972 territory, and the payer’s box 3 figure is the starting point, not the end. See also code A, which usually appears alongside the pre-1936 birth-date rule.
Sources
- Instructions for Forms 1099-R and 5498 (2026): Table 1 distribution codes and the instructions for the 1099-R boxes covered above. Read November 2, 2026.
IRS page last reviewed June 23, 2026. This is the 2026 edition of the instructions, written for forms filed for 2026 distributions; the IRS revises it each year, so check the current edition before relying on a code.
Frequently asked questions
What is box 3 on Form 1099-R?
Box 3 is the capital gain portion included in box 2a. It is used for charitable gift annuities and for certain lump-sum distributions to participants born before January 2, 1936.
Is box 3 added to box 2a?
No. The IRS describes box 3 as capital gain included in box 2a, so it is already inside the taxable amount.
How is the pre-1974 capital gain figured?
Multiply the total taxable amount by months of active participation before 1974 divided by total months of active participation. Each calendar year before 1974 counts as 12 months if any part of it was active; later years count by the month.
Does a direct rollover have a box 3 amount?
No. The instructions say not to complete box 3 for a direct rollover.
Which plans does the special box 3 rule cover?
Lump-sum distributions from qualified plans only, for participants born before January 2, 1936, or their beneficiaries.
Not tax or legal advice
This page summarizes IRS instructions to payers and is not tax, legal or financial advice. A CPA, enrolled agent or the payer can confirm what applies to your situation. Everything runs in your browser; nothing you enter is sent anywhere.