Updated October 18, 2026. Quick answer: Part II of Form 4972 is the 20% capital gain election. Line 6 is the capital gain part from Form 1099-R box 3, and line 7 multiplies it by 20%. The result goes into the tax on Form 1040 line 16 with box 2 checked, or on to Part III if you also choose the 10-year option.
What this part is for
The part heading reads “Complete this part to choose the 20% capital gain elections”. The instructions explain the election: “If the distribution includes a capital gain amount, you can (a) make the 20% capital gain election in Part II of Form 4972, or (b) treat the capital gain as ordinary income.” “Only the taxable amount of distributions resulting from pre-1974 participation qualifies for capital gain treatment.” The wider form is described on the Form 4972 page.
The instructions to line 6 begin by saying when to skip it: “Leave this line blank if your distribution doesn’t include a capital gain amount or you aren’t making the 20% capital gain election, and go to Part III.”
The lines, one by one
| Line | What the form says |
|---|---|
| Line 6 | “Capital gain part from Form 1099-R, box 3” |
| Line 7 | “Multiply line 6 by 20% (0.20)” |
| After line 7 | “If you also choose to use Part III, go to line 8.” “Otherwise, include the amount from line 7 in the total on Form 1040, 1040-SR, or 1040-NR, line 16, or Form 1041, Schedule G, line 1b.” “Be sure to check box 2 on Form 1040, 1040-SR, or 1040-NR, line 16.” |
Line 7 is plain arithmetic on line 6. The tax rate on that line is the 20% printed in the line itself.
Where the number comes from
The instructions say “Generally, enter on line 6 the amount from Form 1099-R, box 3.” That box is explained at Form 1099-R box 3, and the instructions note “The capital gain amount should be shown in Form 1099-R, box 3.”
Two exceptions send you to a worksheet. For net unrealized appreciation: “However, if you elect to include NUA in your taxable income, use the NUA Worksheet, earlier, to figure the amount to enter on line 6.” For a death benefit exclusion: “use the Death Benefit Worksheet, earlier, to figure the amount to enter on line 6.”
On NUA, the instructions say: Normally, NUA in employer securities received as part of a lump-sum distribution “isn’t taxable until the securities are sold.” “However, you can elect to include NUA in taxable income in the year received.” “The total amount to report as NUA should be shown in Form 1099-R, box 6.” “Part of the amount in box 6 will qualify for capital gain treatment if there is an amount in Form 1099-R, box 3.” See Form 1099-R box 6 and employer stock in a 401(k) for the box and the stock.
The worksheet is named the NUA Worksheet, and its introduction reads: “Use the NUA Worksheet on this page to figure the capital gain part of NUA if you make the election to include NUA in your taxable income.” “To figure the total amount subject to capital gain treatment including the NUA, complete the NUA Worksheet on this page.” Its lines are not reproduced here; work them on the worksheet in your own instructions. The Death Benefit Worksheet is printed beside it.
A worked example
Illustration, not an IRS example. Suppose box 3 of the Form 1099-R shows an invented 10,000 and no worksheet applies, so line 6 is 10,000.
| Item | Illustration |
|---|---|
| Line 6 (suppose Form 1099-R box 3 is) | $10,000 |
| Line 7: 0.20 x line 6 | $2,000 (computed) |
That is 0.20 x 10,000 = 2,000 on line 7.
Where it goes next
The paragraph after line 7 gives the two destinations: “If you also choose to use Part III, go to line 8.” That is covered at Form 4972 lines 8 to 17. “Otherwise, include the amount from line 7 in the total on Form 1040, 1040-SR, or 1040-NR, line 16”, described at Form 1040 line 16, “or Form 1041, Schedule G, line 1b.” Do not miss the box: “Be sure to check box 2 on Form 1040, 1040-SR, or 1040-NR, line 16.” The final line of the whole form is covered at Form 4972 lines 18 to 30.
The 20% in Part II
| Where | What the IRS prints |
|---|---|
| Line 7 | “Multiply line 6 by 20% (0.20)” |
| What the rate applies to | “apply a 20% tax rate to the capital gain portion” |
| The election itself | “make the 20% capital gain election in Part II of Form 4972” |
The 20% appears in the form and in the instructions; it is a rate printed on the line, not one worked out for you.
Edition and line numbers
This page reads Form 4972 for 2025 and its instructions, the current file irs.gov served on 2026-10-18, for a distribution received in 2025. Check the edition printed on your own form and use that edition’s line numbers.
Common mistakes
- Entering an amount on line 6 when you are not making the election. The instructions say “Leave this line blank if your distribution doesn’t include a capital gain amount or you aren’t making the 20% capital gain election, and go to Part III.”
- Using box 3 alone when NUA is included. The instructions say “However, if you elect to include NUA in your taxable income, use the NUA Worksheet, earlier, to figure the amount to enter on line 6.”
- Leaving box 2 unchecked on Form 1040 line 16. The form says “Be sure to check box 2 on Form 1040, 1040-SR, or 1040-NR, line 16.”
Related: Form 1099-R box 3, Form 1099-R box 6, Form 1040 line 16, and employer stock in a 401(k).
Sources
- Form 4972 (2025) with instructions, Tax on Lump-Sum Distributions: https://www.irs.gov/pub/irs-pdf/f4972.pdf
- IRS: About Form 4972: https://www.irs.gov/forms-pubs/about-form-4972
Read from the IRS documents linked above on October 18, 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.