Are there any tax considerations for investors receiving this distribution on August 29, 2025?

Created August 07, 2025 at 04:25 PM

Tax considerations for investors who receive the FT distribution on August 29 2025

Item	What it means for you	Why it matters
Type of distribution	The $0.0425 per‑share payment is described as a “monthly distribution from net investment income.” In practice this is treated as an ordinary dividend (i.e., a cash dividend) rather than a return‑of‑capital or a capital‑gain distribution.	Ordinary dividends are taxable in the year they are received (2025 for most U.S. investors). They are not automatically “qualified” unless the dividend meets the qualified‑dividend rules.
Taxable year	The dividend is paid on August 29 2025 and the shareholder of record date is August 18 2025. For most individual taxpayers the dividend is included in 2025 taxable income, regardless of when you actually receive the cash (the payable date).	You will report it on your 2025 Form 1040 (or the equivalent return for non‑U.S. persons).
Ordinary vs. qualified dividend	Because the distribution comes from “net investment income” of a common‑stock REIT‑type fund, it is unlikely to qualify as a qualified dividend (the holding‑period and U.S. corporate‑stock requirements are generally not met). It will be taxed at your ordinary income tax rate rather than the lower qualified‑dividend rate.	The tax rate could be as high as your marginal federal rate (10 %–37 % for 2025) plus any applicable state tax.
State tax	FT is domiciled in California (SAN MATEO, Calif.). California taxes ordinary dividend income at the same rate as other ordinary income. If you are a California resident, the dividend will be subject to California personal‑income tax. Non‑California residents will still owe state tax in their home state, but may be able to claim a credit for any California tax paid.	State tax can add several percentage points to your overall tax burden (e.g., 4 %–13 % depending on the state).
Holding‑period rules for qualified dividends	To be a qualified dividend you would need to hold the FT shares for more than 60 days during the 121‑day period that begins 60 days before the ex‑dividend date. Even if you meet that period, most REIT‑type distributions still do not qualify because the underlying earnings are not “qualified” corporate earnings.	If, for some reason, the distribution is later re‑classified as qualified, the tax rate could drop to 0 %–20 % (the qualified‑dividend rates). At present, assume ordinary‑income treatment.
Impact on cost basis	Ordinary cash dividends do not affect the cost basis of your FT shares. Your basis remains the price you paid for the shares (plus any reinvested dividends, if you used a dividend‑reinvestment plan).	When you eventually sell the shares, the basis will be used to calculate capital gain or loss.
Potential withholding for non‑U.S. investors	If you are a foreign (non‑U.S.) investor, the payer may be required to withhold 30 % (or a treaty‑reduced rate) on the dividend unless you provide a valid Form W‑8BEN (or the appropriate treaty documentation).	The amount withheld is creditable against your home‑country tax liability, but you may need to file a U.S. tax return to claim a refund if the rate was over‑withheld.
Tax‑advantaged accounts (IRA, 401(k), etc.)	If the FT shares are held inside a tax‑deferred or tax‑free account, the dividend is generally not taxable in the year received. In a traditional IRA/401(k) it is tax‑deferred until withdrawal; in a Roth IRA it is tax‑free if the account is qualified.	This can dramatically reduce the current‑year tax impact. However, the distribution will still be reported on Form 5498 (IRA) and will affect your account balance.
Potential AMT (Alternative Minimum Tax) impact	Ordinary dividends are not a specific AMT preference item, but the additional ordinary income could push you into the AMT calculation if your overall taxable income is high.	Most investors are not subject to AMT, but be aware if you already have other AMT‑triggering items.
Interaction with other income	The dividend adds to your Adjusted Gross Income (AGI), which can affect phase‑outs for other deductions, credits (e.g., the Child Tax Credit, charitable‑contribution limits), and the Net Investment Income Tax (NIIT) if your modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly).	The NIIT is a 3.8 % tax on net investment income (including dividends) above those thresholds. Most investors below those thresholds will not be affected.
Reporting on the tax return	On Form 1040 (2025) you will list the dividend on Line 3b (Ordinary dividends) and on Schedule B if total ordinary dividends exceed $200 (or if you have other investment income). The amount will also be reflected on Form 1099‑DIV that you should receive from the broker or the fund by late January 2026.	Keep the 1099‑DIV for your records; the ex‑dividend date, record date, and payable date are all useful for confirming the amount and timing.

Bottom‑line checklist for August 29 2025 dividend recipients

Determine your tax status (U.S. individual, non‑U.S. investor, corporate, etc.).
Confirm the dividend amount ($0.0425 × your share count) and that you were a shareholder of record on August 18 2025.
Treat the payment as ordinary dividend income on your 2025 tax return (unless held in an IRA/401(k) or other tax‑advantaged account).
Add the amount to ordinary income on Form 1040, Line 3b; if total > $200, complete Schedule B.
Account for state tax (California resident → CA tax; non‑resident → home‑state tax, possibly with a credit).
If you are a foreign investor, ensure Form W‑8BEN is on file to claim any treaty reduction; expect possible 30 % withholding.
Keep the 1099‑DIV you’ll receive in early 2026 for filing and for any potential amendment.
Consult a tax professional if you:
- Hold the shares in a taxable brokerage account and have a high marginal tax rate.
- Are near the NIIT or AMT thresholds.
- Are a non‑U.S. person subject to withholding.
- Use the dividend in a tax‑advantaged account and need guidance on roll‑over rules.

Key takeaway: The $0.0425‑per‑share distribution from Franklin Universal Trust is a taxable ordinary dividend for the 2025 tax year. It will be taxed at your ordinary federal and state rates (unless held in a tax‑deferral or tax‑free account), and foreign investors may face withholding. Proper reporting on Form 1040 (and any applicable state return) is required, and you should keep the 1099‑DIV for documentation.

Are there any tax considerations for investors receiving this distribution on August 29, 2025?

Bottom‑line checklist for August 29 2025 dividend recipients

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Bottom‑line checklist for August 29 2025 dividend recipients