Nontaxable Distribution

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DEFINITION of 'Nontaxable Distribution'

A type of dividend that is paid to shareholders of a corporation not as a result of earnings, but as a return of capital. Nontaxable distributions can also include stock received from a spinoff. Dividends paid to cash-value life insurance policyholders are also considered nontaxable returns of capital.

BREAKING DOWN 'Nontaxable Distribution'

Shareholders who receive nontaxable distributions must reduce the basis in their stock accordingly. Upon the sale of the stock, the resultant gain or loss will be calculated from the adjusted basis. Nontaxable distributions are generally reported in box 3 of the Form 1099-DIV.

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RELATED FAQS
  1. Do penny stocks pay dividends?

    Because of the small market capitalization and revenues typical of most penny stocks, there are very few that offer dividends. ... Read Full Answer >>
  2. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  3. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
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    Among the companies that offer the most stable dividends for risk-averse investors are large, solidly established U.S.-based ... Read Full Answer >>
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    Due to their highly stable earnings and cash flows, utilities companies are popular among investors interested in dividend ... Read Full Answer >>
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    The utilities sector is popular among value investors due to the dividends paid by utility companies as well as the traditionally ... Read Full Answer >>

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