DianeW777
Expert Alumni

Retirement tax questions

Yes, I can explain.  TurboTax does not know when the nondividend distribution should be nontaxable. If you know you have not yet recovered your cost/investment, you must make the adjustment to reduce the taxable dividend.

 

The reason is that as you receive this specific distribution it requires a manual reduction to your original cost basis/investment.  As previously detailed by @GeoffreyG, this is a return of your capital investment.  Each time you receive a return of capital (nondividend distribution) you must reduce your cost basis/investment.  The nondividend distribution remains nontaxable until you recover your investment, once that is completely recovered, all future nondividend distributions become taxable.

 

 

 

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