ETF return of capital distributions have a weird tax perk no one talks about
Return of capital grants investors access to portfolio basis. That's very rare.
I was on ’s podcast last week.
Here’s the video…
You can also read his lengthy write-up on return of capital.
Return of capital basics
Here’s my visual guide to return of capital.
In one line: Return of capital is a distribution beyond what an ETF earned.
Examples:
If an ETF made 6% but distributed 8%, 2% is return of capital.
If an ETF made -10%, but distributed 8%, 8% is return of capital.
This is a simple illustration of return of capital creeping into distributions.
Return of capital is often marketed as a tax strategy since the distributions (technically, “nondividend” distributions) are not taxed.
That’s a rare bird in the investing world.
Let’s see why…