Nontaxable Distribution


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.

  1. Taxes

    An involuntary fee levied on corporations or individuals that ...
  2. Adjusted Basis

    The proportionate value of an asset or security that reflects ...
  3. Distribution

    1. When trading volume is higher than that of the previous day ...
  4. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  5. Spinoff

    The creation of an independent company through the sale or distribution ...
  6. Record Date

    The cut-off date established by a company in order to determine ...
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