Reporting non-dividend distribution on 1099-DIV

[dvalley]

I'm entering data from the 1099-DIV form I got from Vanguard. It has $113.xx worth of nondividend distributions. TaxAct said I had to pick the cost basis for it, I didn't find the information on the form so I selected zero and now it says this:

You entered nondividend distributions on Form 1099-DIV for Vanguard Marketing Corp. The nondividend distributions exceed your basis in the stock by $114. This amount will be reported as a capital gain on Form 8949. If you held the stock under one year before receipt of the nondividend distributions, select "Short-term" below. If you held the stock one year or longer, select "Long-term."

I'm not sure where to find this info, I have the 'Date paid' column on the 1099-Div form but not date acquired.

 

[kaneohe]

Have you tried calling VG? If you're lucky they might some record of the purchase, how much you bought it for,when you bought it, whether you are reinvesting dividends, etc. If you had enough basis, the non-dividend distribution would reduce the basis but would not be taxable.

 

[COcheesehead]

Rather than entering this info manually, have you tried downloading it into the tax program instead? Much of the info you are asking for could be in the download.

 

[dvalley]

I'm using taxAct - unlike the w2s where it gave me the option to download the info directly I didn't find that option for this. I did send an email to Vanguard about my question above so we shall see what they say.

 

[COcheesehead]

I use Turbo Tax and the download would be as part of importing all your 1099/cap gains/interest from your broker.

 

[ownyourfuture]

I use Turbo Tax and the download would be as part of importing all your 1099/cap gains/interest from your broker.

Same for me.

 

[Souschef]

This came up in our AARP tax class. It is a tax free return of capital.In theory, you would reduce your basis by that amount.

 

[Edgewater Tom]

Non-dividend distributions reduce your basis in the stock. Once your basis has been reduced to zero, the IRS will tax those distributions as capital gains in the year of distribution. So, your tax prep program is just monitoring your decreasing basis in the stock pending the day you sell your shares...then, it can compute your ST/LT Cap Gain/Loss properly.

Say you bought 100 shares of a $10 stock thru Schwab. Your basis for that position is $1,006.95. Now, the company gives you back a non-dividend distribution of $100...your basis in the position is now $906.95. Keep reducing each year by any non-div distributions. Once the basis is 0 (as you are trying to report) the distribution becomes a Cap Gain for tax purposes. You can't go below 0.

 

[dvalley]

Well as with my previous interactions with Vanguard's support (vs. Fidelity, who seemed a lot more knowledgeable and eager to help) was useless, they responded with 'pls contact a tax professional we can't provide tax advice'

 

[dvalley]

Non-dividend distributions reduce your basis in the stock. Once your basis has been reduced to zero, the IRS will tax those distributions as capital gains in the year of distribution. So, your tax prep program is just monitoring your decreasing basis in the stock pending the day you sell your shares...then, it can compute your ST/LT Cap Gain/Loss properly.

Say you bought 100 shares of a $10 stock thru Schwab. Your basis for that position is $1,006.95. Now, the company gives you back a non-dividend distribution of $100...your basis in the position is now $906.95. Keep reducing each year by any non-div distributions. Once the basis is 0 (as you are trying to report) the distribution becomes a Cap Gain for tax purposes. You can't go below 0.

Thank you, I think I understand it now. So basically I'd have to find my cost basis and then reduce the non-div distribution amount from it. However, I don't know what my cost basis are to begin with. With DCA every month the basis vary and I believe the brokerage is supposed to track and provide that info.

 

[dvalley]

OK, upon further reading it looks like Box 3 on 1099-DIV which is where this amount was reported for VTSAX is for informational purposes only. From what I understand it's not taxable and doesn't need to be reported unless the basis are 0 or until I sell. This isn't the case for 2016 and in the future if either of the two situations happen I'd think Vanguard would report it as capital gains with the appropriate accounting/adjust-basis figured out.

So I'm going to not report the $113.xx in box 3 so TaxAct won't throw up all over itself.

 

[kaneohe]

..............From what I understand it's not taxable and doesn't need to be reported unless the basis are 0 or until I sell. This isn't the case for 2016 and in the future if either of the two situations happen I'd think Vanguard would report it as capital gains with the appropriate accounting/adjust-basis figured out.

..........................

since VG is not reporting basis now,this is likely a non-covered security so VG likely will not be reporting it as CG in the future since it has no interest or info to do that.

 

[LOL!]

OK, upon further reading it looks like Box 3 on 1099-DIV which is where this amount was reported for VTSAX is for informational purposes only.

I own VTI (a different share class of VTSAX). I didn't get anything reported in Box 3 from two different brokers.

Perhaps asking at bogleheads.org will turn up more people with a number in box 3. Maybe you already asked over there anyways?

Did you get some kind of bonus from your financial institution? Was this some money from lending out your shares that no one else got?

 

[dvalley]

I asked VG another way and here's what they said (except notice they say VGSLX but in fact it's for VTSAX):

The nondividend distributions reported for the Vanguard REIT Index Fund
Admiral Shares (VGSLX) is return of capital. This part of the distribution
is nontaxable because it is a return of your cost.

We automatically update your cost basis for the security once we have
received this information so your revised cost basis information is
available online at vanguard.com. We reviewed our records and you did not
sell any shares of VGSLX last year so you did not realize any gains through
the sale of the security that can be offset by the return of capital.

Oh and here's the description of Box 3:

Box 3. Shows the part of the distribution that is nontaxable because it is a return
of your cost (or other basis). You must reduce your cost (or other basis) by this
amount for figuring gain or loss when you sell your stock. But if you get back all
your cost (or other basis), report future distributions as capital gains. See Pub.
550

So I think it's ok to not report Box 3 to the IRS but will quiet TaxAct?

 

[Philliefan33]

From VG's response, this is my understanding. They gave you back $113 that you had given them to purchase shares. They adjusted your basis accordingly. So if your basis in the fund was $1000 before the distribution, Vanguard is now reporting your basis as $887. You don't have to pay taxes on the $113 because you are just getting your money back.

To make it work in your tax software, either don't enter anything into Box 3, or enter $113 in Box 3 and report the basis as $113.

Personally I would opt for the second option so the return wouldn't be flagged by a first-level check that you have entered everything reported on the 1099.

 

[dvalley]

To make it work in your tax software, either don't enter anything into Box 3, or enter $113 in Box 3 and report the basis as $113.

Well I can't report the basis as $113 right? TaxAct wants to know the 'pre-adjusted' basis before the $113. So let's say i look through my Dec 2016 statement and find the basis for VTSAX, let's say I own 50 VTSAX shares for a total of $1113 bought at various times. Should I report the basis as $1113 - $113 = $1000

 

[cathy63]

I think you are overthinking this. If you look at the actual Schedule B form that TaxAct fills out for you, you'll see there is no place for the number from Box 3 and that number won't appear anywhere in the file that TaxAct sends to the IRS, so there's no reporting going on in the background.

The IRS doesn't care about returns of capital until you actually sell the asset and Vanguard has already told you that when you do sell the asset in some future year, then they will report the adjusted basis to the IRS and to you on a 1099-B. The number in box 3 of a 1099-DIV is just for your own information right now.

If, for some reason, you want to track your cost basis in TaxAct, put $113 in the spot for Box 3 and put the "pre-adjusted" basis, which would be your actual purchase price that you gave as $1113 in your example above.

 

[Philliefan33]

My mistake. I thought Tax Act was asking for the basis on the $113 for some reason, then trying to calculate a gain on that money.

 

[dvalley]

Thank you Cathy63! I agree! I came to the same conclusion a couple of posts ago (that is to just not even bother filling in Box 3 in TaxAct) but wanted confirmation from others.

When I sell the stocks, I'm sure VG will provide the appropriate basis info etc at that time.

 

[gerntz]

Sounds like there's some Master Limited Partnerships in fund to me.

 

[meierlde]

The IRS doesn't care about returns of capital until you actually sell the asset and Vanguard has already told you that when you do sell the asset in some future year, then they will report the adjusted basis to the IRS and to you on a 1099-B. The number in box 3 of a 1099-DIV is just for your own information right now.

Except when your basis gets to zero and then the IRS does want the distribution reported as a capital gain (long or short term)

 

[Horseback]

I have exactly the same question dvalley had.
So can I just not report the amount on Taxact form?
Could dvalley let me know what you finally did?
Thanks.

 

[meierlde]

I had Frontier communications do this last year and adjusted the basis as appropriate. (If you bought the stock in question since the time brokers are required to report the basis, they should do it for you that is stocks purchased 2010 or later)

 

[bingybear]

Sounds like there's some Master Limited Partnerships in fund to me.

The OP noted info from VG on VGSLX which was noted as REITs. REITs will distribute ROC.

If your 1099 has something in box 3, then you need to input that value in box 3 of the tax code. That will likely be a flag to the IRS by not coping data properly.
If you look at VG basis now it likely has the ROC subtracted already. I think the only way the basis really effects you taxes is if the ROC makes your basis go below 0. In this case I think it will generate a different form on income (CG?).

If you look at the detailed part of the 1099 statement (the stuff that is not reported to the IRS and likely says "for information only" .. you should see what investments generated the Non taxable dividends. This will tell you where to look for a basis.

I dropped taxact this year (paid for it, but moved to Turbotax) so I can't easily check your issue. I bet it is an input that will not be used if the resulting basis is positive. You could just check by playing with the values to see what actually changes. One of the biggest problems with people using tax programs... many don't understand how what they do effects the overall taxes.

A little ROC does not have to be a scary thing.. especially if the brokerage keeps track of the basis.

 

[dvalley]

I have exactly the same question dvalley had.
So can I just not report the amount on Taxact form?
Could dvalley let me know what you finally did?
Thanks.

I didn't report it since my interpretation was that box 3 is for my own information purposes only. When the basis go to 0 or the if I sell the shares is when IRS cares neither is the case here. I filed yesterday so we shall see what happens.