When a corporation, bank, or credit union undergoes a partial or complete liquidation, you may get a cash or noncash liquidation distribution. An amount designated as a cash or noncash distribution is often not taxable, but instead reduces your basis in the stock you own. If a cancellation of stock occurs from a liquidation, a loss can be claimed the year the final distribution is received if total distributions are less than the basis.
When you sell the stock, your cost basis for figuring gain or loss is reduced by any distributions you received.
However, in the following cases the distribution is taxable and you need to report the distribution as a liquidation sale in the Investment Income section of TurboTax:
- Your cost basis in the stock is zero.
- Your cost basis is less than the distribution amount.
- This liquidation is a final distribution from the company.
You would not need to report this unless this is the final distribution or if the cost basis is less than the distribution amount.
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