RaifH
Expert Alumni

Retirement tax questions

A return of principal is not a taxable transaction. These come from nondividend distributions and reduce your basis in the stock. You may leave them off your tax return entirely as long as you still have a basis in the underlying stock.

 

When you sell the stock in the future, your cost basis will be reduced because of the return of principal which means your gain will be larger (or loss smaller) on the sale.