Updated October 17, 2026. Quick answer: Box 3 of Form 1099-R is captioned as a capital gain amount included in box 2a, and the payer’s instructions say to report in it any amount taxable as a capital gain. The recipient instructions connect it to a lump-sum distribution from a qualified plan for someone born before January 2, 1936, and to a charitable gift annuity.
Retirement forms read line by line: Form 4972, Form 4972 Part II and Form 4972 lines 8 to 17.
What box 3 is
The form’s caption makes the relationship explicit: “Capital gain (included in box 2a)”. Box 3 is therefore included in box 2a. The payer’s instruction is short: “If any amount is taxable as a capital gain, report it in box 3.” The taxable amount is on the box 2a page and the total is on the box 1 page; the whole form is on Form 1099-R boxes explained.
The recipient instructions
The recipient instructions for box 3 begin: “If you received a lump-sum distribution from a qualified plan” “and were born before January 2, 1936 (or you’re the beneficiary of someone born before January 2, 1936), you may be able to elect to treat this amount as a capital gain on Form 4972”. It then adds: “(not on Schedule D” of Form 1040), and a pointer: “See the Form 4972 instructions.”
The lump-sum side of the form is also covered on the box 1 page, where the instruction is “However, if this is a lump-sum distribution, see Form 4972.”
Charitable gift annuities
The recipient instructions also cover a charitable gift annuity. They say “For a charitable gift annuity, report as a long-term capital gain as explained in the Instructions for Form 8949.” The payer’s instructions describe the whole set of entries: “Report in box 3 any amount from a charitable gift annuity that is taxable as a capital gain.” “Report in box 1 the total amount distributed during the year.” “Report in box 2a the taxable amount.” and “Report in box 5 any nontaxable amount.” The payer is also told to use a code: “Enter Code F in box 7.” The page for the code is 1099-R code F, and the broader topic is on the charitable gift annuity page.
Collectibles and unrecaptured gain
One more instruction in the gift annuity entry concerns the annuity recipient: “Advise the annuity recipient of any amount in box 3 subject to the 28% rate gain for collectibles and any unrecaptured section 1250 gain.” That sentence is addressed to the payer.
How the payer fills the lump-sum case
For the birth-date rule, the payer’s instructions are specific: “For lump-sum distributions from qualified plans only, enter the amount in box 2a eligible for the capital gain election” and then the full amount: “Enter the full amount eligible for the capital gain election.” The next sentence says “You should not complete this box for a direct rollover.”
How the capital gain portion is worked out
The payer’s instructions include a two-step method for the lump-sum case. Step 1 finds the total taxable amount from the total distribution. The line labels are “Total distribution” less the actuarial value of any annuity, “Employee contributions or designated Roth contributions”, and “Net unrealized appreciation in the value of any employer securities”. The result is described as “Total taxable amount. Subtract line C from line A.” Step 2 labels the result “Capital gain” and spreads it by months: the figure is the total taxable amount times “Months of active participation before 1974” divided by “Total months of active participation”.
| Line | Item | Illustration |
|---|---|---|
| A | Total distribution | $60,000 |
| B1 | Current actuarial value of any annuity | $0 |
| B2 | Employee contributions or designated Roth contributions | $10,000 |
| B3 | Net unrealized appreciation in employer securities | $5,000 |
| C | Total of lines B1 through B3 | $15,000 |
| D | Total taxable amount (A minus C) | $45,000 |
| Result | $45,000 x 36 months / 240 months | $6,750 |
This table is an illustration, not an IRS example, and every figure in it is made up: $60,000 minus $15,000 equals $45,000 and then $45,000 times 36 divided by 240 is $6,750. It shows only how the quoted lines connect. The instructions also say how months are counted: “count as 12 months any part of a calendar year in which an employee actively participated under the plan” for the years before 1974.
Related pages
The box 7 codes are covered on the box 7 codes page. For a lump sum in general, see the pension lump sum break-even and withholding on a pension lump sum. Box 6 is covered on the box 6 page.
Edition and box numbers
The primary read for this page is the 2025 Form 1099-R with its 2025 filer instructions. The 2026 edition was the current one irs.gov served on 2026-10-17. The 2025 form says “you may be able to elect to treat this amount as a capital gain on Form 4972” in the recipient instructions, and the 2026 form has the same wording. For a charitable gift annuity, the 2025 filer text says “Enter Code F in box 7.” and the 2026 text says “Enter code F in box 7a.” The 2026 text also says “we added boxes 7c (Trump account) and 7d (Earnings on excess contributions)”. Check the tax year printed on the form you received. The overview is Form 1099-R boxes explained, and the neighbouring box is box 2a.
Common mistakes
- Adding box 3 to box 2a. The form’s caption says “Capital gain (included in box 2a)”, so box 3 is already inside box 2a.
- Putting a lump-sum capital gain election on Schedule D. The recipient instructions say it is made “on Form 4972 (not on Schedule D” of Form 1040).
- Expecting a box 3 figure on a rollover. The payer’s instructions say “You should not complete this box for a direct rollover.”
Related: Charitable gift annuity, 1099-R code F, 1099-R box 7 codes, Pension lump sum vs monthly annuity, and 20 percent withholding on a pension lump sum.
Sources
- Form 1099-R (2025) with Instructions for Recipient: IRS archived PDF (irs.gov)
- Form 1099-R (2026) with Instructions for Recipient: https://www.irs.gov/pub/irs-pdf/f1099r.pdf
- 2025 Instructions for Forms 1099-R and 5498: IRS archived PDF (irs.gov)
- 2026 Instructions for Forms 1099-R and 5498: https://www.irs.gov/pub/irs-pdf/i1099r.pdf
Read from the IRS documents linked above on October 17, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.