@WendyN2
Thank you for the detail response.
The original Ponzi loss safe harbor deduction was under Sched A Other Misc Deductions. Therefore, the deduction reduced ordinary income.
If I track basis in Sched D, then taxable recoveries are treated as investments and subject to ST/LT and suspended CG loss. I have a bunch suspended CG loss and would eliminate all the taxable recoveries.
Doesn't quite make sense the Safe Harbor deduction reduced ordinary income and recoveries are treated as capital gains+loss. I of course would benefit greatly but seems like IRS would want to deduction and income treated similarly.
I do have the taxable/untaxable portion of the recoveries tracked precisely and maintained for records. Along with principle and phantom incomes for total loss value.
