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I'm calculating the basis in connection with redeeming shares of an international stock mutual fund. The fund has paid dividends quarterly, which I reinvested. I'm reviewing the Federal 1099-DIV forms for each year I have owned the fund. In box 1a, the stated dividends include the actual dividends PLUS the foreign tax paid.

Question: In calculating the basis, do I use (a) only the actual dividends or (b) the dividends listed in box 1a of 1099-DIV, which adds in the foreign tax credit? [Of course, I take the foreign tax credit on Form 1040, line 47 in 2017.]

  • The amount that was reinvested was the net distribution (after subtracting withheld tax) and that is what goes in your basis. Do you hold this directly or via a broker? Either way, the ones I've used have websites that do the calculation of basis and unrealized gain/loss for you, lot by lot if you wish. (PS: FTC was line 48 of 1040 for 2013-2017, and line 48 of schedule 3 for 2018.) – dave_thompson_085 Jan 5 at 1:08
  • Also (just remembered) if you sell only part of a mutual-fund holding they will usually default to reporting it using basis averaging; if you want something else like FIFO or specific lot(s) be sure to specify this before the transaction. – dave_thompson_085 Jan 5 at 1:36
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You might be saying that the dividend received is positive, the foreign taxes paid are negative, and the two items are added, or netted, together.

However, line 1a of the 1099-DIV is "Total Ordinary Dividends" while line 6 is "Foreign Tax Paid". The two items are separate.

A stock broker account will often charge a fee for a dividend paid from an ADR. That fee is the only thing that might be subtracted from the dividend.

Line 1b of the 1099-DIV is "Qualified Dividends" but that is just concerns a U.S. tax discount on dividends.

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