What is a non dividend distribution

[Hal_Al · Accepted solution]

A non dividend distribution is a "return of capital". That is, you are getting some of your original investment back. It is not taxable. Note that you entered it into TurboTax (TT) via a 1099-div, but it doesn't show up on your tax return.

But, it is only not taxable for now. It will be taxed later. In your own records you reduce your cost basis by the amount you received, for when you sell it in the future. It may be best explained by example. Two years ago you bought 100 shares of ABC mutual fund for $1000. This year you got a  non dividend distribution of $100 from ABC. Your new cost basis is $900 (1000-100). Next year you sell those 100 shares for $1200. Your reportable capital gain is $300 (1200 -900).