Nondividend Distributions

Dividends are a share of corporate or mutual fund profits paid out to shareholders. While most dividend distributions are taxable (some at lower rates than others), sometimes a portion of a distribution to shareholders is a nontaxable return of capital. These are also called nondividend distributions.

What are Nontaxable Distributions

Nontaxable distributions are payments that are a return of capital. This means that the shareholder’s original investment is being returned to the shareholder. These payments are not paid from the corporation’s earnings and profits. These distributions reduce your basis in the stock or mutual fund and aren’t taxed until the investor’s basis is reduced to zero.

Form 1099-DIV Box 3

You can find your nontaxable distributions on Form 1099-DIV, Box 3. They’re uncommon.

How to Calculate Nondividend Distributions

Reduce your basis in your investment by the amount of your nontaxable distribution. Once you recover your full basis, report distributions as capital gains. To learn more, see Publication 550: Investment Income and Expenses at www.irs.gov.

More Help with Taxes on Investment Income

Investment income poses special considerations come tax time, including special filing requirements and tax. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you get back the most money possible.