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Old 07-18-2013, 05:16 PM
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Question NonDividend Distribution - How to apply on 1040

I received NonDiv Distribution on 2012 1099-DIV Box. 3 from a stock that I bought and sold in 2012. I was told that this distribution should reduce my Cost. Where do I reflect this reduction of Basis? If on Form 8949, then what should be the Code used in Column F on Form 8949?



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Old 07-19-2013, 11:17 AM
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Quote:
Originally Posted by lbogatin View Post
#1:I received NonDiv Distribution on 2012 1099-DIV Box. 3 from a stock that I bought and sold in 2012. I was told that this distribution should reduce my Cost.


#2:Where do I reflect this reduction of Basis? If on Form 8949, then what should be the Code used in Column F on Form 8949?
#1; Correct as return of capital. On Form 1099-DIV, a nondividend distribution will be shown in box 3. If you do not receive such a statement, you report the distribution as an ordinary dividend.





#2: When you receive this type of distribution, you're considered to be getting back some of the money you invested in the company. That's why these payments are sometimes called return of capital distributions. Don't confuse these payments with exempt interest distributions. Those distributions represent interest received by the mutual fund from municipal bonds and similar investments. Return of capital distributions don't come from exempt interest or from any other type of earnings.Return of capital distributions appear in box 3 of Form 1099-DIV, labeled "Nondividend distributions.Before you can determine how to report your distribution, you have to take care of an important piece of business: adjusting the basis of your shares. Your basis is used to measure how much gain or loss you have when you sell your shares. You can think of it as a measure of how much you have invested in your shares. When you receive a return of capital, you're getting some of your investment back, so your basis in the shares goes down. Since 1998 the IRS does not ask you to report these distributions at all. (Before that, you had to report them as part of your dividends and then subtract them so they would be nontaxable.) So the only time you have to report anything from a nondividend distribution is when the amount exceeds your basis in the mutual fund shares. You aren't allowed to have negative basis. If your nondividend distribution is larger than your basis, you reduce the basis to zero — and you report the additional amount of the distribution as capital gain on Sch D/ new form 8949. Report this amount as short-term or long-term gain, depending on how long you held your shares.



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