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Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. These distributions are, at least in part, one form of a return of capital. They may be paid in one or more installments. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 and/or 9.
Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock. After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain. Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock.
If it was a partial liquidation, there is nothing to report on your tax return. You adjust the cost basis of your stock or mutual fund by the amount of the partial liquidation shown in Box 8 and/or Box 9, then when you eventually sell the stock you will use the lowered cost basis as the purchase price of the stock.
If the liquidating distribution shown in Box 8 and/or 9 is a complete liquidation, then report the amount in Box 8 and/or 9 on the stock sale screen as a stock sale. For example, if your cost basis in stock in a company is $1,000 and the company is totally liquidated, then if you receive a 1099-DIV with Box 8 showing $400 and you received nothing else from the liquidation, then you would report the stock as a sale on the stock sale screen and report $400 as the sales price and $1,000 as the cost basis in the stock that was completely liquidated.
This is reported as a sale with the taxable amount as the gross proceeds and zero cost basis. Long or short term depends on the holding period.
- Under Wages and Income > Investment Income (Stocks, bonds, mutual funds, other, then select Other) - You can also use Search (upper right) > type 1099b > Click the Jump to ... Link.
- Long term is a holding period of more than one year and receives capital gain tax treatment (0%, 10%, 15%, 20% depending on your regular rate of tax)
- Short term is a holding period of one year or less and receives ordinary gain tax treatment (your regular rate)
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