Recovery of capital doctrine means You don’t pay tax on getting your own money back. Tax starts when you get more than what you originally put in.  Think of your investment like a refillable bottle. The money you put in is your basis (your original cost). When you receive money back, it usually fills down that basis first. Only after the basis reaches zero do extra payments typically count as taxable profit (gain/income). Mini example (numbers): You invest $100 (your basis is 100). You receive $70 back. That’s usually return of capital , so your basis drops to $30 . Later you receive $50 . The first $30 usually completes your capital recovery (basis becomes 0). The remaining $20 is typically taxable profit. Why people care: It stops you from being taxed on a “receipt” that is really just your own principal returning home. Note: This is a common idea in U.S. tax language and shows up in distributions, asset sales, and some settlements. Rules depend on t...