Distributions that qualify as a return of capital are not dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the basis of your stock. For information on Basis of Assets, refer to Topic 703. A distribution generally qualifies as a return of capital if the corporation making the distribution does not have any accumulated or current year earnings and profits. Once the basis of your stock has been reduced to zero, any further non-dividend distribution is capital gain.
Can you explain this better? And do you know how it works if the dividends are paid to represent shares? I don't get dividend checks with dividend stocks; I get added shares; like sometimes fractions or maybe 1 1/2 shares or even less
In taxable accounts one needs to keep good records of reinvested dividends and the quantity of shares purchased with each case of reinvestment. If I were to reinvest dividends as they are received, I prefer to do it in a retirement account....less record keeping.
Fidelity adjusted my cost basis by lowering the corresponding amount that was considered return of capital. So when I sell, I will pay more cap gains tax. It's a wash because the shares are now long term shares
Fidelity just put them online today. I called two weeks ago and asked why they were so late and they said they were in contact with the company and wanted to classify the divs correctly so they didn't have to send corrected forms out.