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For 2025, Strategy reported that 100% of distributions on its preferred-equity instruments were treated for U.S. federal tax purposes as a nontaxable return of capital (ROC) until a holder’s tax basis was exhausted. For an STRC investor, that generally means reducing the adjusted basis of the shares rather than reporting the cash as dividend income. Any distribution above remaining basis is generally capital gain.
Your final broker Form 1099-DIV is the document used to complete the return. Strategy’s Form 8937 supports the basis adjustment, but an issuer statement does not replace the broker’s final tax form. Character can change by tax year, and state rules, account type and individual circumstances can produce a different result.
What an STRC cash payment can be for tax purposes
A cash payment and a dividend for tax purposes are not always the same thing. A distribution from STRC may be classified as an ordinary dividend, a qualified dividend, a nondividend distribution (usually return of capital), or a combination of categories. The classification determines whether you owe tax now, adjust your basis, or recognize gain later.
In its February 5, 2026 results release, Strategy stated: “For U.S. federal income tax purposes, 100% of distributions paid during calendar year 2025 on the Company’s preferred equity instruments were treated as a nontaxable return of capital (“ROC”) to the extent of a recipient shareholder’s tax basis in their applicable preferred equity instruments, as reported on Forms 8937.” The statement applies to 2025 distributions and is limited by each holder’s basis. Strategy also said it expects ROC treatment for the foreseeable future while warning that its expectations may change.
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That is an issuer position for the stated year, not a permanent Internal Revenue Service ruling. The final classification shown by your broker and the applicable-year issuer documentation must be reconciled before you file.
How the 2025 ROC treatment works
ROC first reduces your adjusted basis
Your adjusted basis is generally what you paid for the STRC shares, plus or minus later adjustments. If a 2025 distribution is reported as a nondividend distribution, subtract it from the basis of the shares that generated the payment. Track the adjustment by tax lot when you own shares bought at different times or prices.
A basis reduction usually defers tax rather than eliminating it. When you eventually sell the shares, the lower basis increases the gain (or reduces the loss) calculated on that sale.
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Distributions cannot reduce basis below zero
Once your remaining basis reaches zero, additional nondividend distributions are generally taxable capital gain under IRS Topic 404. The excess is no longer a tax-free recovery of your investment because there is no basis left to recover. The character and reporting of that gain depend on your circumstances and the applicable tax forms.
Future years are not automatically covered
Do not carry the 2025 classification into 2026 or later without checking the documentation for that year. Strategy’s expectations may change, and the company’s earnings and profits can affect whether a distribution is treated as a dividend. A new Form 8937, a corrected broker form, or a prospectus update can change the analysis.
Which documents you need before filing
Final broker Form 1099-DIV
Wait for the final Form 1099-DIV for the tax year, including any supplemental statement. This is the reporting document used on your federal return. A brokerage website’s yield display, an estimated tax-character notice, or an interim issuer communication is not a substitute for the final form.
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Issuer Form 8937
Strategy’s Return of Capital Information page explains that issuers file Form 8937 for organizational actions, including nontaxable distributions that affect a security’s basis. The page lists STRC Forms 8937 for October–December 2025 and January–August 2026. Download the form for the applicable distribution period and retain it with the broker statement. Form 8937 supports the basis adjustment; it does not replace Form 1099-DIV.
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Your own basis records
Keep purchase confirmations, share quantities, acquisition dates, adjusted-basis data from the broker, and a schedule showing each ROC reduction. Broker basis reporting can be incomplete for older positions, transfers, inherited shares, or shares held at more than one firm. Your records should explain how you reached the basis used on a later sale.
How to report STRC on a federal return
- Collect the final forms. Obtain the final broker Form 1099-DIV and supplemental statement for the tax year, then obtain the matching Strategy Form 8937 for each applicable distribution period.
- Identify the 1099-DIV box. The box determines the starting point for your entry. Use the broker’s final amounts rather than replacing them with an online estimate.
- If the payment is in box 3, adjust basis. Box 3 is for nondividend distributions. Reduce the adjusted basis of the STRC shares by the reported amount, allocating the reduction among the lots that received the distribution. Do not report the box-3 amount as ordinary dividend income merely because cash was paid.
- If basis reaches zero, recognize the excess. When a nondividend distribution exceeds the remaining basis, the excess is generally capital gain. Follow the Form 1099-DIV and Form 1040/Schedule D instructions for the year, and obtain professional help if the broker does not provide enough detail to identify the gain.
- If the amount is in box 1a, report it as an ordinary dividend. Box 1a is total ordinary dividends. Enter it where your Form 1040 or Form 1040-SR instructions direct.
- Use box 1b for the qualified portion. Box 1b is the portion of box 1a that the payer identifies as qualified dividend income. When required, use the Form 1040/1040-SR Qualified Dividends and Capital Gain Tax Worksheet or the applicable Schedule D worksheet.
- Reconcile disagreements. If Strategy’s ROC information conflicts with a preliminary or final broker form, ask the broker whether a corrected Form 1099-DIV will be issued. Do not silently alter a filed form. Ask a tax professional how to document a material discrepancy and whether an amended return is required after a correction.
- Recalculate basis when you sell. Use the reduced adjusted basis to determine gain or loss on Form 8949 and Schedule D when those forms apply. Include all ROC reductions that occurred before the sale.
What the key 1099-DIV boxes mean
| Box | What it represents | Typical STRC action |
|---|---|---|
| 1a | Total ordinary dividends reported by the payer | Report as dividend income according to Form 1040 instructions. |
| 1b | Qualified dividend portion included in box 1a | Use the qualified-dividend and capital-gain worksheet when required; do not treat the entire box 1a amount as qualified. |
| 3 | Nondividend distributions, commonly ROC | Reduce the STRC adjusted basis. Amounts received after basis reaches zero are generally capital gain. |
A corrected 1099-DIV can move an amount from one box to another. Keep the original and corrected forms, update your basis schedule, and follow the filing instructions for the corrected information.
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Worked examples
ROC below your basis
You paid $1,000 for a lot of STRC shares. The broker reports a $120 box-3 distribution. Your adjusted basis becomes $880 ($1,000 minus $120). There is no current federal dividend income from that box-3 amount, but a later sale uses the $880 basis.
ROC exceeds your remaining basis
Your remaining adjusted basis is $50 and the broker reports an $80 box-3 distribution. The first $50 reduces basis to zero. The remaining $30 is generally capital gain in the year received. Follow the year’s IRS instructions for reporting that gain and retain the Form 8937 and broker statement showing the calculation.
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Ordinary and qualified dividend boxes
Suppose the broker reports $100 in box 1a and $40 in box 1b. Report $100 as total ordinary dividends, with $40 identified as the qualified portion for the qualified-dividend worksheet. Box 1b is not an additional $40 payment and does not replace box 1a.
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Why preferred-stock status does not make STRC payments qualified dividends
STRC’s prospectus says distributions are taxable dividends to a U.S. holder to the extent of Strategy’s current or accumulated earnings and profits and discusses possible qualified-dividend treatment. That language does not guarantee qualified treatment for every payment or every holder.
IRS instructions generally require you to hold the stock for more than 60 days during the 121-day period around the ex-dividend date. For preferred-stock dividends attributable to periods totaling more than 366 days, a more-than-90-day holding-period rule generally applies, along with other statutory requirements. Shares subject to hedges or other transactions can create additional complications. A finance website’s “qualified” label or the fact that STRC is preferred stock is not enough; rely on the payer’s box 1b amount and the applicable IRS rules.
Taxable brokerage account versus an IRA
| Issue | Taxable brokerage account | IRA or other tax-advantaged account |
|---|---|---|
| Current reporting | Use the final 1099-DIV; box 1a/1b may create current dividend income, while box 3 generally changes basis. | The account’s distribution rules generally govern current taxation; the custodian’s tax form and withdrawal rules matter more than a personal brokerage basis schedule. |
| ROC basis tracking | Track each lot because ROC lowers the shares’ adjusted basis. | Ask the custodian how it records the payment. Do not assume a taxable-account basis method applies inside the account. |
| Sale or withdrawal | A lower basis can increase capital gain when STRC is sold. | Tax is generally determined when money is withdrawn under the account’s rules, not by treating each internal payment as a separate taxable dividend. |
These are different tax systems. A cash payment that is ROC in a taxable account may have no immediate personal tax entry inside an IRA, while later withdrawals can be taxable under the IRA’s rules. Confirm the treatment with the custodian and your tax adviser, especially for conversions, inherited accounts, or early withdrawals.
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Federal, state and local differences
The 2025 ROC statement is about U.S. federal income tax. States and localities can define dividends, basis adjustments and capital gains differently, or conform to federal treatment only as of a particular date. Review the instructions for every state in which you file. Keep the federal Form 8937 and 1099-DIV, but do not assume that a federal box-3 treatment automatically controls a state return.
Common mistakes and how to correct them
- Calling every STRC payment a qualified dividend. Preferred status alone does not satisfy the holding-period and other requirements. Use box 1b and the IRS worksheet rules.
- Reporting box 3 as dividend income. A nondividend distribution generally reduces basis first. Recording it as ordinary income can create tax that is not due and leaves your basis overstated.
- Failing to reduce basis. If you keep the original purchase basis, a later sale can show too little gain or too much loss. Update the lot schedule when each ROC payment is reported.
- Using a preliminary issuer estimate instead of the final broker form. Timing differences can produce a corrected 1099-DIV. File from the final form and preserve both versions if a correction arrives.
- Applying 2025 treatment forever. Tax character can change with Strategy’s earnings and profits, new issuer filings, or a different broker classification. Check the documentation for each tax year.
- Ignoring basis below zero. Once basis is exhausted, additional nondividend distributions are generally capital gain rather than tax-free recovery.
Annual STRC tax checklist
- Download the final Form 1099-DIV and every supplemental statement from the broker.
- Obtain the Strategy Form 8937 covering the distribution period and save it with the statement.
- Mark each STRC tax lot that received a box-3 payment and subtract the amount from its adjusted basis.
- Check whether any box-3 amount exceeded the remaining basis.
- For box 1a amounts, verify the box 1b qualified portion and apply the required holding-period rules.
- Compare broker and issuer information; request a corrected form when the broker’s final classification is wrong or incomplete.
- When selling STRC, use the fully adjusted basis and report the resulting gain or loss on the forms required for that year.
- Review state and local rules separately and retain records long enough to support a future sale or audit.
For 2025, the practical rule is straightforward but record-intensive: follow the final broker Form 1099-DIV, use Strategy’s Form 8937 to support any ROC basis reduction, and treat the 2025 issuer statement as year-specific rather than a promise about future distributions.
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