I have an amount in Box 3 non dividend distributions. Is that reportable/requiring an adjustment somewhere?

Forum|Forum|7 years ago
June 1, 2019
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TurboTax Self Employed Online

Anonymous

Actually, you won't report your non-divided distribution to the IRS, and you won't enter it on your tax return. Please allow me to explain.

A non-dividend distribution is just another way of saying "return of capital." It is meant for your information only, and that of your brokerage or financial firm. A non-dividend distribution, you see, is a return of some portion of your original investment; and as such you would need only to reduce the cost basis of your stock, bond, mutual fund, other security, etc. This adjustment does matter in future tax periods, because it is the difference between basis and net proceeds on which capital gains taxes are applied. Perhaps a numerical example will be illustrative.

Let's say you buy a single share of stock at $100. That's your original cost basis. Then, one day your company issues you a non-dividend distribution of $20. Your stock's adjusted basis is now $100 - $20 = $80. When you later sell your share of stock to an unrelated third-party for $110, your taxable capital gain is now $30 (the difference between $110 and $80), and not $10 (the difference between $110 and $100). Does that make sense?

The IRS instructions for Form 1099-DIV Box 3 will tell you much the same thing:

https://www.irs.gov/pub/irs-access/f1099div_accessible.pdf

Another way of looking at it is you have simply been given back part of your original investment. If you were to receive a 1099-DIV statement, with an amount printed in Box 3 (non-dividend distribution), then you could certainly type that number into the TurboTax data entry screen for the 1099-DIV tax form . . . but it won't actually do anything. Quite honestly, the Box 3 entry field is put there only to make our customers feel more comfortable that TurboTax is accurately capturing their tax information. That is the whole purpose.

However, the important thing to note about a non-dividend distribution, and something that does require action, is that of the taxpayer's own recordkeeping. If you have a brokerage firm holding this asset, it is likely that they will adjust the cost basis for you in their records (and thus in yours too). But if you hold this asset on your own, outside of any financial institution, then you'll need to adjust your own basis and own records.

What you will not have to do, however, is to either enter or disclose this item anywhere on your tax return, either federal or state (if applicable).

Thank you for asking this important question.

cocoanuts

Level 4

Wow, glad I researched and asked Turbotax. I have a non-dividend distribution for 2024 on my 1099-DIV. I entered it into my tax SW, but it was flagged during the review/checks. That is the only reason I researched and learned about reducing my cost basis on that stock because it WAS sold last year. I ran this question by my Morgan Stanley broker, he researched, too, and agreed that I should reduce my cost basis. Never did he say to not report it at all and that it was simply my own money being returned to me (that probably got reported as income the previous year). And apparently, he has no idea if Morgan Stanley ready adjusted my cost basis for me and doing so again would be dumb. (I did not know to ask that question.) It is only $6. But what if it had been $600? I thought that if the amount was on my 1099, I needed to report it because the IRS knows about it. The stock sold is a "non-covered security", so the cost basis was not reported to the IRS by MS. Should I just delete the $6 entry?

DawnC

Level 15

No, don't delete it. A non-dividend (box 3 of 1099-DIV) distribution is nontaxable because it is a return of capital. The treatment of the distribution is the same if it is for $6 or $600.

The amount of a non-dividend distribution is usually smaller your basis. In the rare case in which the distribution is more than the basis, the shareholder must reduce their cost basis to zero and report the excess amount of the distribution as a capital gain on IRS Form Schedule D.

Once the adjusted cost basis of your stock has been reduced to zero, any further non-dividend distribution is a taxable capital gain that you report on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D, Capital Gains and Losses. @cocoanuts

Keep track of your cost basis. If the basis is already zero and you need to report a capital gain, search for investment sales, use the jump to link and use the 1099-B entry to report a capital gain. Where do I enter a capital gain?

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