DEFINITION of 'Nontaxable Dividends'

Dividends from a mutual fund or some other regulated investment company that are not taxed. Taxes are not paid out because the fund invests in municipal and other tax exempt investments.

BREAKING DOWN 'Nontaxable Dividends'

The mutual fund must invest over 50% of its capital into tax exempt investments for the dividends to be classified as nontaxable.

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