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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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March 22, 2022
5:59 AM