Return of Capital

Return of capital is for U.S. federal tax reporting, return of capital is a nondividend distribution that generally reduces an investor’s tax basis until basis reaches zero.

A simple example

A $100 nondividend distribution can reduce a $1,000 tax basis to $900, subject to the applicable tax rules.

Why this matters to income investors

Return of capital describes tax character, not by itself whether a distribution was economically constructive or destructive.

How to use return of capital in your research

Use final Form 1099-DIV information, track adjusted basis, and separately examine whether portfolio income and gains supported the payment.

This material is general education and information, not individualized investment, tax, or legal advice.