2016 Closed-End Tax Guide

2016 Closed-End Tax Guide

A guide to your year-end tax forms and questions

Preparing federal and state income tax returns can be challenging, but Invesco helps make this process easier by providing the information you need in a clear, concise and timely manner. This guide is a summary of useful information for Invesco closed-end funds and was created using the most recent information available.

Please be aware that this guide isn't meant to replace the assistance or advice of a tax professional. We hope, though, that it will help you better organize and understand the portion of your income tax return that involves your Invesco closed-end investments. If you have questions about any of the forms you've received from Invesco, please contact an Invesco representative at 800 341-2929 Monday through Friday, 7:30 a.m. to 4:30 p.m. CST.

Year-end tax information

Tax forms

Listed below is a brief description of the tax forms you may receive from Invesco to complete your income tax return.

Form 1099-DIV is a record of dividend and capital gain distributions — including those that are reinvested — paid by your fund investments during 2016. A Form 1099-DIV was sent to you only if you received more than $10 in taxable distributions in 2016. Even if you didn't receive a Form 1099-DIV, the IRS requires that you report taxable earnings on your income tax return. Tax-exempt income you received in 2016 will be reported in Box 10 of Form 1099-DIV and includes any amount subject to federal alternative minimum tax (AMT).

Form 1099-B is a record of the redemption proceeds from the sale of your fund shares during 2016. The form also includes any federal income tax that has been withheld according to IRS backup withholding requirements. If you received less than $20 in distributions from your fund, you will not receive a Form 1099-B — unless the sale was for whole shares or backup withholding was applied. If you sold shares through your financial advisor, your Form 1099-B was sent from that institution. The information provided on this form is used to calculate any gain or loss on a redemption of fund shares. Your cost basis is a record of any gains or losses from the sale of your fund shares. When available, the cost basis on your Form 1099-B provides the information you need to determine gains or losses from redeemed shares. Please consult your tax advisor if you need additional information about cost basis.

Form 1042-S is your record of all distributions, including dividends, short-term capital gains, long-term capital gains, and/or return of capital, and redemptions from accounts owned by nonresident aliens or representatives of foreign corporations. This form also reports the amount of federal tax withheld from distributions because of the nonresident alien status. The withholding rate, which is determined by the IRS, is based on the country of tax residence and Invesco's receipt of a Certificate of Foreign Status (Form W-8). If you are not a US citizen, this form allows you to prove to your government that you have paid nonresident alien taxes to the US government. Mutual fund long-term capital gains are exempt from withholding but are still reported on Form 1042-S if you have other reportable income.

Directions for completing Form 1042-S

Taxable distributions

If you received Form 1099-DIV, a portion of your distributions is subject to federal income tax. These distributions are taxed as follows:

Ordinary dividends can be found in Box 1a of Form 1099-DIV. This amount represents any taxable income earned on securities held by your fund, as well as any net short-term capital gains that were distributed to shareholders. If you participated in the dividend reinvestment plan and shares were purchased at a discount to the market price, this amount will also reflect the value of this discount. Ordinary dividends are taxed at your ordinary income rate. Qualified dividends shown in Box 1b reflect the portion that may be eligible for a reduced capital gains rate. See IRS Form 1040/1040A instructions for how to determine this amount.

Total capital gains distributions can be found in Box 2a of Form 1099-DIV. This amount reflects any long-term capital gains distributed by your fund. Long-term capital gains are recognized on securities held in the fund's portfolio for more than one year before being sold.

Income breakdown

Federal alternative minimum tax (AMT) and income from government obligations

In addition to its exemption from federal income taxes, a portion of your tax-exempt income may be free from state and local income taxes, depending on the tax laws of your state or local taxing authority. If you own one of Invesco's national tax-exempt funds, the percentage of your fund's tax-exempt income by state is located below under Federal Alternative Minimum Tax - National Funds. Tax-exempt income is reported in Box 10 on Form 1099-DIV and income subject to federal AMT is reported in Box 11.

Please consult your tax advisor to determine whether you are eligible for state tax exemption for this portion of your fund's income.

Invesco national tax-exempt funds

Fund name Symbol
Invesco Value Municipal Income Trust IIM
Invesco Municipal Income Opportunities Trust OIA
Invesco Quality Municipal Income Trust IQI
Invesco Advantage Municipal Income Trust II VKI
Invesco Municipal Opportunity Trust VMO
Invesco Municipal Trust VQK
Invesco Trust For Investment Grade Municipals VGM

In many states, the portion of your fund's income that is derived from US Treasury bonds is exempt from state income taxes. In a few states, income derived from other government agencies is also free from state income taxes. The percentage of 2015 ordinary income attributable to government and agency obligations is listed below. Primary obligations represent direct investments in Treasury securities, while secondary obligations are direct investments in generally qualifying US agency obligations. Please consult your tax advisor to determine whether this income is taxed in your state.

Dividend income derived from government obligations (%)
Invesco Bond Fund Primary obligations 0.97
Secondary obligations 0.00

The federal AMT applies to individuals who enjoy certain tax benefits, such as large deductions or exclusions from income. This tax prevents those individuals from avoiding a minimum tax liability on their income. Federal AMT income may be found on Form 1099-DIV, Box 11.

If your tax-exempt fund invests in certain private activity bonds, you could be subject to federal AMT. The percentage of your fund's tax-exempt income that is subject to federal AMT is outlined as follows:

State-specific funds

Fund name Symbol Primary
state
(%)
Other US
territories
(%)
Other
(%)
AMT
(%)
Invesco California Value Municipal Income Trust VCV 95.67 4.11 0.22 3.8521
Invesco Pennsylvania Value Municipal Income Trust VPV 94.31 5.69 0.00 5.5973
Invesco Trust for Investment Grade New York Municipals VTN 95.26 4.74 0.00 6.6929
State
OIA
(%)
IIM
(%)
IQI
(%)
VKI
(%)
VCV
(%)
VMO
(%)
VKQ
(%)
VPV
(%)
VGM
(%)
VTN
(%)
Choose a state above
Alabama 1.03 1.78 1.01 1.63 0.00 1.49 1.23 0.00 1.90 0.00
Alaska 0.00 0.35 0.38 0.37 0.00 0.37 0.25 0.00 0.37 0.00
American Samoa 0.22 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Arizona 2.03 2.82 2.39 1.86 0.00 2.26 1.70 0.00 2.08 0.00
Arkansas 0.00 0.00 0.00 0.12 0.00 0.09 0.00 0.00 0.00 0.00
California 13.36 14.21 13.41 13.02 95.67 9.28 7.56 0.00 9.60 0.00
Colorado 4.70 2.43 2.05 2.36 0.00 3.27 2.56 0.00 1.87 0.00
Connecticut 0.12 0.35 0.47 0.00 0.00 0.46 0.47 0.00 0.60 0.00
Delaware 0.33 0.00 0.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00
District of Columbia 1.02 4.27 2.51 2.32 0.00 2.40 2.44 0.00 2.89 0.00
Florida 8.03 6.83 9.15 6.29 0.00 7.35 5.96 0.00 8.60 0.00
Georgia 1.58 1.29 0.80 2.34 0.00 2.67 1.23 0.00 2.04 0.00
Guam 0.00 0.00 0.00 0.00 2.45 0.00 0.60 3.63 0.00 3.35
Hawaii 0.67 1.39 1.32 1.45 0.00 1.29 0.71 0.00 0.78 0.00
Idaho 0.56 1.14 0.43 0.60 0.00 0.54 0.39 0.00 0.56 0.00
Illinois 11.32 10.76 10.84 12.56 0.00 11.76 10.56 0.00 10.34 0.00
Indiana 1.84 2.13 2.71 2.79 0.00 2.74 2.73 0.00 3.02 0.00
Iowa 2.58 1.49 0.96 0.54 0.00 0.55 0.41 0.00 0.33 0.00
Kansas 1.31 0.73 0.42 0.44 0.00 0.77 0.49 0.00 0.57 0.00
Kentucky 0.43 1.95 1.91 2.74 0.00 2.37 2.04 0.00 2.33 0.00
Louisiana 1.06 1.67 1.86 1.89 0.00 1.91 1.55 0.00 1.64 0.00
Maine 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Maryland 0.94 0.65 0.83 0.72 0.00 0.78 0.57 0.00 0.76 0.00
Massachusetts 0.77 1.90 2.54 1.24 0.00 0.84 4.07 0.00 2.09 0.00
Michigan 1.12 1.23 1.14 0.86 0.00 1.14 0.84 0.00 1.20 0.00
Minnesota 3.36 0.00 0.00 0.69 0.00 0.44 0.57 0.00 0.77 0.00
Mississippi 0.18 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Missouri 3.09 0.68 0.46 1.18 0.00 0.85 0.94 0.00 1.36 0.00
Montana 0.00 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Nebraska 0.30 0.84 1.22 0.57 0.00 1.27 0.91 0.00 0.66 0.00
Nevada 0.78 1.67 0.57 0.23 0.00 0.72 0.58 0.00 0.72 0.00
New Hampshire 0.59 0.00 0.00 0.00 0.00 0.08 0.00 0.00 0.00 0.00
New Jersey 2.49 3.44 5.25 3.46 0.00 4.58 11.17 0.00 4.34 0.00
New Mexico 0.27 0.00 0.55 0.52 0.00 0.52 0.45 0.00 0.51 0.00
New York 5.96 8.09 8.47 7.11 0.00 8.12 7.55 0.00 9.34 95.26
North Carolina 0.56 1.28 3.06 0.92 0.22 1.84 1.41 0.00 1.45 0.00
North Dakota 0.04 0.00 0.00 0.13 0.00 0.12 0.10 0.00 0.09 0.00
Ohio 5.30 3.48 4.82 4.93 0.00 4.50 11.34 0.00 5.22 0.00
Oklahoma 1.13 0.04 0.09 0.00 0.00 0.25 0.00 0.00 0.00 0.00
Oregon 0.00 0.17 0.41 0.00 0.00 0.07 0.00 0.00 0.00 0.00
Pennsylvania 3.18 1.04 0.66 0.39 0.00 1.78 0.94 94.31 1.28 0.00
Puerto Rico 0.85 0.00 0.00 0.00 0.36 0.00 0.00 0.08 0.00 0.08
Rhode Island 0.00 0.05 0.05 0.05 0.00 0.06 0.05 0.00 0.05 0.00
South Carolina 0.99 1.80 0.56 1.25 0.00 1.31 0.99 0.00 1.06 0.00
South Dakota 0.00 0.35 0.12 0.25 0.00 0.33 0.24 0.00 0.24 0.00
Tennessee 1.33 0.35 0.27 1.57 0.00 0.43 0.43 0.00 0.52 0.00
Texas 8.43 9.39 9.76 13.38 0.00 11.75 8.94 0.00 12.24 0.00
Utah 0.28 0.57 0.48 0.79 0.00 0.15 0.09 0.00 0.94 0.00
Vermont 0.00 0.00 0.11 0.02 0.00 0.00 0.04 0.00 0.00 0.00
US Virgin Islands 0.00 0.27 0.26 0.25 1.30 0.24 0.76 1.98 0.24 1.31
Virginia 0.29 1.92 2.27 1.07 0.00 0.81 0.76 0.00 0.81 0.00
Washington 2.00 2.75 2.06 1.80 0.00 3.14 1.46 0.00 2.15 0.00
West Virginia 0.79 0.46 0.00 1.02 0.00 0.75 0.82 0.00 0.81 0.00
Wisconsin 2.49 1.74 1.29 1.71 0.00 1.35 0.88 0.00 1.26 0.00
Wyoming 0.00 0.00 0.00 0.57 0.00 0.21 0.22 0.00 0.37 0.00
Federal AMT Percentage 5.6644 6.5332 7.0344 9.8008 3.8521 8.0210 8.4378 5.5973 9.2126 6.6929

For shareholders in the funds listed below, the information to complete your tax return can be found on Form 1099-DIV. You do not need any additional information about your fund's income sources.

Fund name Symbol
Invesco Bond Fund VBF
Invesco Dynamic Credit Opportunities VTA
Invesco High Income Trust II VLT
Invesco Senior Income Trust VVR

A guide to your year-end tax forms and questions

I thought my fund was tax exempt. Why am I receiving tax forms?

Although most income distributions from your tax-exempt fund are not subject to regular federal income taxes, there are some instances in which you will receive some taxable income:

  • Mutual funds and other regulated investment companies are required to report exempt-interest dividends in Box 10 of Form 1099-DIV.
  • Your fund paid a capital gain.
  • Your fund was required to recognize taxable income on securities purchased at a discount.
  • Your participation in the fund's dividend reinvestment plan generated discount income (the difference between the discounted purchase price and the market price of reinvested shares is taxable). This amount is included in Box 1a (total ordinary income) on Form 1099-DIV.

Do I need to report reinvested dividends and/or capital gain distributions as income?

Yes. Income from taxable funds and all capital gain distributions are taxable, regardless of whether you receive them in cash or reinvest them in additional fund shares. You should keep a record of the amount of dividends reinvested because this will increase your cost basis in the fund's shares. By keeping track of reinvested dividends, you'll be able to determine the correct taxable gain or loss when you redeem or exchange your fund shares.

Why are some distributions that I received in January 2017 reported as income for 2016?

Under current tax law, the taxable income shown on Form 1099-DIV must include distributions declared in 2016, even if the distribution isn't actually received until January 2017.

What is a qualified dividend?

A qualified dividend is paid to the fund by a "qualified" company. This is defined as a domestic company traded on a qualifying exchange or a foreign company where the country of origin has a comprehensive income tax treaty with the US that includes an exchange of information program. There is also a holding period requirement that must be met for a dividend to be deemed qualified. Qualified dividends may be eligible for a reduced tax rate.

I didn't redeem any shares this year. Why am I subject to capital gains taxes?

If your fund's manager purchased securities and later sold them for more than the purchase price, your fund earned capital gains. These gains are distributed to shareholders during the year. If you received a capital gain distribution in 2016, you will be required to pay taxes on that amount, regardless of whether you received it in cash or reinvested it in additional shares. The capital gains amount can be found on Form 1099-DIV.

Form 1099-DIV reports ordinary dividends and capital gains on separate lines. Are they taxed at different rates?

Yes. Capital gains are generally taxed at a lower rate than ordinary income.

How can I find out about any state tax exemptions on income my fund earned?

Certain states have special exemptions for income earned from US government securities and tax-free municipal securities issued in that state. You can find an income breakdown by state for your fund inside this supplement, which should help you identify any income that may be tax-exempt in your state. Consult your tax advisor or state tax agency about the specific rules in your state.

According to my 1099 forms, federal income tax was withheld from my distributions. Why?

Federal law generally requires us to withhold 28% of any distribution or redemption if we do not have a correct and certified Social Security or taxpayer identification number for your account. The IRS tells us which Social Security or taxpayer identification numbers are not correct or certified and requires us to perform this withholding. The withholding amount shown on your 1099 forms should be reported as "federal income tax withheld" on your federal income tax return.

Did you know?

Form 1099-DIV

The following income will be reported on Form 1099-DIV in accordance with IRS instruction:

  • Exempt-interest dividend
  • Specified private activity bond interest dividend

Form 1099-B

Computershare will report sales price less commissions and options premiums.

For your protection, Invesco will mask the first five digits of your Social Security number, and it will read in the format XXX-XX-1234. Please note that accounts in an employee identification number or taxpayer identification number format may not be masked.

At Invesco, we know even small steps make an impact. By reducing the amount of printed materials you receive, you can help protect the environment. Additionally, you will enjoy fast and easy portfolio management and the convenience of viewing your materials online.

Consider taking these simple steps to reduce your ecological footprint. With a click of the mouse you can:

  • Obtain electronic tax forms
  • Update banking details
  • Certify your tax status
  • Impact the environment

Going green is fast and easy! To sign up for electronic communications, log into the closed-end account access Investor Center.

As part of the Energy Improvement and Extension Act of 2008, mutual fund companies are required to report your cost basis information on IRS Form 1099-B for shares that were acquired and subsequently redeemed on or after Jan. 1, 2012. The default cost basis method for all closed-end funds is first in–first out (FIFO), unless you as the shareholder elect another method.

The backup withholding rate is set at 28% for 2016.

For more information contact the IRS or Invesco

Internal Revenue Service

  • Call the IRS customer service line at (800) 829-1040
  • For IRS tax forms and publications, call (800) 829-3676
  • Visit the IRS website at irs.gov

Invesco

  • For fund or account questions, call Invesco at (800) 341-2929
  • Access our Contact Us section to send us an email.
  • Order duplicate forms, access account balances, perform transactions and more by visiting the closed-end account access Investor Center.