Mutual Funds (Costs, Distributions, etc.)
Question: How does the return of principal payments affect my cost basis in my mutual funds?
Answer:
This return of principal payments is often referred to as either “return of capital” or “non-dividend distributions.” As a return of your original investment (cost), they reduce your basis.
- Basis, however, cannot be adjusted below zero.
- Once you have adjusted your basis to zero, any additional returns or distributions (other than dividend distributions) are reported on Schedule D (Form 1040) (PDF), Capital Gains and Losses, and Form 8949 (PDF), Sales and Other Dispositions of Capital Assets.
Additional Information:
Category: Capital Gains, Losses, Sale of Home
Subcategory: Mutual Funds (Costs, Distributions, etc.)
