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What’s the difference between a nontaxable distribution and a tax-free dividend?

April 26, 2017distribution dividend nontaxable tax-free

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What’s the difference between a nontaxable distribution and a tax-free dividend?

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Nontaxable distributions are distributions that are made by returning a portion of your capital (investment), whereas tax-free dividends are ordinary (income) dividends derived from municipal bonds and notes. While nontaxable distributions are not reportable as dividend income, you can reduce your cost basis (generally equal to the amount you paid for your shares) by the amount of the nontaxable distribution.