No. of Recommendations: 6
ROC, of course, is not taxed.
Like everything tax-related, it's more complicated than that. If you haven't used up your basis, then it's true that it's not taxed in the year you receive it. However, if you have used up your basis, it's taxed as a capital gain in the year you receive it.
If you haven't used up your basis, your basis goes down. That means if you sell, your capital gain is more (or capital loss less), which may result in additional tax owed (or not, depending upon lots of other factors).
So rather than being not taxed, it results in deferred tax for a while, and then when taxed, it's often taxed at a lower rate (LTCG instead of marginal). Both good things, but not "not taxed".
Brian
