How does Return of Capital Work Concerning High Income ETF Investing? Taxes, considerations and more

Return of Capital (ROC) is a portion of a distribution from an investment that is not considered taxable income because it represents a return of the investor’s original capital rather than earnings or profits. Unlike dividends or capital gains, ROC reduces the cost basis of the investment, which can defer taxes until the asset is sold. Once the cost basis reaches zero, any further ROC distributions are taxed as long-term capital gains. This tax treatment makes ROC an attractive option for income-focused investors, as it can provide cash flow while potentially delaying tax liabilities. However, excessive ROC may indicate that an investment is returning principal rather than generating sustainable profits.

My Story:
I am a 31-year-old investor who took out a $83,104 HELOC loan in the hopes of finding a way to retire sooner by investing in high-income ETFs and simple options trading. I am already maxing out my 401k, Roth IRA, and HSA, but I have not figured out what the best short-term options are for cashflow. Here is my Journey!

Referral stuff:
https://thedividendtracker.com/?ref=9AMBw9
https://join.robinhood.com/matthem1229

Investing Channel:
Youtube:
https://youtube.com/@ProjectPremiumHarvest?si=l2mIxwYRPzgaQU0g
Rumble:
https://rumble.com/user/ProjectPremiumHarvest

Brother's Finance YouTube channel:
https://youtube.com/@TheNotGuruInvestor?si=KDexe1fRGEJHX1xd

M2 Expeditions (my other side project):
https://youtube.com/@M2-Expeditions?si=Htn4qKJ2IHsJMPrc
Instagram:
https://www.instagram.com/m2expeditions/

Harvestor Research:
https://www.kurvinvest.com/etfs
https://www.yieldmaxetfs.com/

This is not financial advice, and I am not a financial advisor. This Project intends to test the feasibility of using debt to gain wealth using high-yield premium ETFs. This is how I decided to do it, and I do not recommend this as financial advice. Using this strategy can potentially ruin your life. I have safety mechanisms that will lessen the blow if this Project goes south.

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