How to handle nondividend distributions when calculating cost basis for stock sales?
So I sold some shares this year and just got my 1099 from my broker. There's a section showing nondividend distributions related to the stock I sold. I've been trying to figure out how to handle this for my taxes and went through publications 550 and 551, but I'm still pretty confused. Do I need to reduce my cost basis by the amount of these nondividend distributions? And if so, do I need to report this adjustment on Form 8949? I've never had to deal with this before on my tax returns. The distribution amount isn't huge (about $430 total), but I want to make sure I'm doing this correctly so I don't mess up my capital gains calculation. Any help would be really appreciated!
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Diego Chavez
Yes, you generally need to reduce your cost basis by the amount of nondividend distributions. This is because nondividend distributions are typically a return of capital rather than income. Here's how to handle it: When you receive a nondividend distribution, it's not taxable income right away, but it does reduce your cost basis in the stock. Once your cost basis reaches zero, any additional nondividend distributions are treated as capital gains. When reporting the sale on Form 8949, you'll use the adjusted cost basis (original purchase price minus the nondividend distributions you've received over time). This will correctly calculate your capital gain or loss. You don't need a separate form for the adjustment itself - just use the reduced basis on Form 8949 when reporting the sale.
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Anastasia Smirnova
•Thanks for the explanation. What happens if the nondividend distribution is more than my original cost basis? Do I report that excess as income in the year I received the distribution or when I sold the stock?
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Diego Chavez
•If the nondividend distribution exceeds your cost basis, the excess should be treated as a capital gain in the year you received the distribution, not when you sold the stock. When your cost basis reaches zero, any additional nondividend distribution becomes immediately taxable as a capital gain. You would have reported this on your tax return for the year you received that distribution, using Schedule D and Form 8949. Once your basis is reduced to zero, you'd keep track of that zero basis for when you eventually sell the shares.
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Sean O'Brien
Just wanted to share my experience with this exact situation. I was totally confused about nondividend distributions last year until I found taxr.ai (https://taxr.ai) which analyzed my broker statements and explained exactly how to handle them. The tool identified my nondividend distributions and calculated my adjusted cost basis automatically. What was super helpful was that it explained WHY these distributions reduce basis (it's basically the company returning some of your investment capital) and then showed me exactly where to report it on Form 8949. Saved me hours of reading through IRS publications trying to figure it out on my own.
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Zara Shah
•Does taxr.ai work with documents from any broker? I have Fidelity and they don't make this stuff super clear on their 1099s.
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Luca Bianchi
•Sounds interesting but I'm skeptical about these tax tools. How accurate is it with more complex situations? I have REIT stocks with return of capital distributions plus some MLP investments with weird K-1 income.
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Sean O'Brien
•Yes, it works with documents from all the major brokerages including Fidelity. It actually specializes in parsing those confusing 1099 forms and explaining what each section means in plain English. For complex situations like REITs and MLPs, it handles those really well. That's actually where it shines compared to regular tax software. It specifically recognizes return of capital distributions from REITs and the unique reporting requirements for MLP investments. It'll analyze your K-1 forms too and explain how each line affects your taxes differently than regular dividend income.
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Zara Shah
Just a quick update - I tried taxr.ai after seeing it mentioned here and it was exactly what I needed! I uploaded my Fidelity 1099-B and it immediately identified the nondividend distributions, explained they were return of capital, and calculated my adjusted basis. What I found most helpful was the step-by-step explanation of how to fill out Form 8949 with the correct adjusted basis. There was even a warning that my particular stock had multiple nondividend distributions over several years, which I hadn't even realized. Would've definitely calculated my gain incorrectly without catching that. Thanks for the recommendation!
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GalacticGuardian
If you're struggling to get answers about your nondividend distributions directly from the IRS, I'd recommend using Claimyr (https://claimyr.com). I spent days trying to get through to an IRS agent to clarify how to handle some complicated nondividend distributions from a REIT. After waiting on hold for hours and getting disconnected twice, I tried Claimyr and had a call back from an actual IRS agent within 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone system for you and get you to a real person. The agent I spoke with confirmed exactly how to handle the basis adjustments and gave me peace of mind I was doing it correctly.
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Nia Harris
•How exactly does this work? Do they just call the IRS for you? I'm confused how they get through when nobody else can.
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Luca Bianchi
•Yeah right. Nobody gets through to the IRS these days. I've tried calling dozens of times about my cost basis issues and kept getting the "call volume too high" message. I'll believe this works when I see it.
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GalacticGuardian
•They don't just call for you - they use their system to navigate the IRS phone tree and wait on hold in your place. When they reach a live agent, they connect you to the call. It's like having someone wait in line for you. They have technology that keeps trying different IRS phone numbers and navigates the system until they find an open line. It's actually pretty clever - they basically keep dialing and trying different options until they break through the busy signals, then they call you when they have an agent ready to talk. I was skeptical too, but after multiple failed attempts on my own, I was willing to try anything.
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Luca Bianchi
I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway out of desperation. I've been trying to get specific guidance on some complicated nondividend distributions for months. Using Claimyr, I got a call back with an IRS agent on the line in about an hour. The agent walked me through exactly how to handle my situation with return of capital distributions that spanned multiple years. She confirmed I needed to reduce my cost basis and showed me how to document it properly on Form 8949 with the code "B" in column (f) for basis adjustment. For anyone struggling with nondividend distribution questions, getting direct confirmation from the IRS was worth it. Definitely saved me from a potential audit headache.
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Mateo Gonzalez
Don't forget that if you're using tax software like TurboTax or H&R Block, you might need to manually adjust the cost basis. When I entered my stock sale last year, the software imported the original cost basis from my 1099-B but didn't automatically adjust for nondividend distributions. I had to manually override the basis amount.
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Aisha Ali
•Is there a specific place in TurboTax where you make this adjustment? I'm using it this year and want to make sure I do this right.
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Mateo Gonzalez
•In TurboTax, when you enter your stock sales, there's a screen that shows the information imported from your 1099-B. Look for an option that says something like "Edit this transaction" or "I want to enter additional information." When you select that, you'll be able to modify the cost basis amount. Enter your adjusted basis (original cost minus all nondividend distributions received while you owned the stock). TurboTax will ask why you're changing the basis - select the option about having adjustments not reflected on your 1099-B. Some versions also have a specific option for return of capital/nondividend distributions.
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Ethan Moore
Also worth mentioning that you should keep really good records of these basis adjustments. I got audited a few years ago specifically because of stock sales where I had adjusted the basis due to nondividend distributions. The IRS computer system flagged it because my reported basis didn't match what was on the 1099-B. I had to provide statements showing all the nondividend distributions I'd received over the years (which luckily I had saved). So keep your year-end statements, 1099-DIVs, etc. that show these distributions!
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AstroAlpha
•That's really helpful to know. I'll definitely save all the documentation. Do you recommend creating any kind of worksheet to track the basis adjustments over time? Or is keeping the statements enough?
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Ethan Moore
•Absolutely create a worksheet! That was exactly what saved me during my audit. I had created a simple spreadsheet showing: - Original purchase date and cost basis - Each nondividend distribution with date and amount - Running total of adjusted cost basis after each distribution The IRS agent specifically commented that my documentation made the audit go much smoother. Keeping just the statements is technically enough, but having it all organized in one place makes it so much easier if you ever get questioned.
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Amina Diallo
This is such a helpful thread! I'm dealing with a similar situation but with mutual fund shares that I've been holding for about 8 years. Over that time, I've received several nondividend distributions that I honestly just ignored because I didn't understand what they were. Now that I'm planning to sell some of these shares, I'm realizing I need to go back and figure out all those distributions to calculate my adjusted cost basis correctly. Does anyone know if there's a statute of limitations on how far back I need to track these adjustments? And if I can't find records of some of the older distributions, is there a way to request that information from the fund company? I'm kicking myself for not keeping better records earlier, but better late than never I guess!
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Liam Brown
•You'll need to track all the nondividend distributions from when you first purchased the shares - there's no statute of limitations on basis adjustments since they affect your capital gains calculation. The good news is that most fund companies are required to keep these records and will provide them to you. Contact your fund company's shareholder services department and request a complete distribution history for your account. They can usually provide a detailed breakdown of all distributions by type (dividends, capital gains, return of capital/nondividend distributions) going back to your purchase date. Some companies even have this information available online in their investor portals. If you've switched brokers over the years, you might need to contact previous brokers too, as they would have the 1099-DIV forms that show the nondividend distributions. The IRS also keeps copies of 1099s, so as a last resort you could request transcripts of your tax records from them, though that takes longer. Don't stress too much about the past - you're doing the right thing by getting this sorted out now before you sell!
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LongPeri
This thread has been incredibly helpful! I just want to add one more tip that saved me a lot of headache - if you have multiple lots of the same stock purchased at different times, make sure you're applying the nondividend distributions correctly to each lot. The distributions typically reduce the basis of all shares you owned at the time of the distribution, not just specific lots. So if you bought 100 shares in January and another 100 shares in March, then received a nondividend distribution in June, that distribution would reduce the basis of all 200 shares proportionally. This becomes really important when you're selling only some of your shares and need to specify which lots you're selling (for tax loss harvesting or other strategies). I made the mistake of only reducing the basis on the shares I was selling, which would have been incorrect. Your broker's 1099-B won't show these per-lot adjustments, so you need to track it yourself. The IRS Publication 551 has some examples of this if you want to see the math worked out. It's a bit tedious but getting it right is worth it!
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Sean Kelly
•This is exactly the kind of detail I was hoping to find! The per-lot basis adjustment makes total sense but I never would have thought of it. I have a similar situation where I've been dollar-cost averaging into the same stock over several years and received nondividend distributions along the way. Do you happen to know if there's a standard way to calculate the proportional reduction? Like if I have 3 different lots with different original basis amounts, do I reduce each lot by the same dollar amount of the distribution, or do I reduce each lot by the same percentage? I want to make sure I'm doing the math correctly when I eventually sell specific lots. Thanks for mentioning Publication 551 - I'll definitely check out those examples!
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