Nondividend Distributions

Sometimes IRS form 1099-DIV reports an amount in Box 3: Nondividend Distributions.

What kind of activity behind the scenes at the payer can generate this kind of distribution?

Reply to
zvkmpw
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Typically, nondividend distributions are returns of capital. These are amounts that may be paid by a company that aren't funded by the profits the company made. These are seem most often with REITs, where part of the distribution is the cost basis of properties the REIT disposed of during the year.

Ira Smilovitz, Ea

Reply to
ira smilovitz

Return of capital. A REIT, for example, may build a mall for $10m and then sell it 5 years later for $18m. It then has an $18m dividend to it's shareholders. $10m of that (or your share of $10m) is a nondividend distribution.

Reply to
NadCixelsyd

The one item not mentioned in the two replies is that you the recipient are required to lower your cost basis in the applicable investment by the amount of that nontaxable distribution in Box 3. Occasionally, these nontaxable distributions may result in a negative adjusted cost. As this is not allowed, you treat the negative amount as a capital gain and keep the adjusted basis at zero..

Reply to
Alan

For covered securities, is the broker or financial institution required to make that adjustment to the basis, so that the basis on the 1099-B will be correct when the investment is sold?

Bob Sandler

Reply to
Bob Sandler

I'll answer the only way I know how: Charles Schwab adjusts my basis for nondividend distributions for every covered security I own. I have to assume that all other brokers do the same.

Reply to
Alan

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