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KL369
Level 2

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

I recvd nothing since all proceeds went to satisfy the note.
7 Replies
KL369
Level 2

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

Update: this was liquidated partly in 2018 then completely in 2019. I'm redoing my Sch D for the loss.

Mike9241
Level 15

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

for example, say you bought a partnership investment and issued borrowed (the note) to pay for it. . so you have an investment with a tax basis of $X for which you owe $X (sort of like buying on margin).  5 years down the road the investment is sold for $X and the money is used to pay off the note.  so you got no cash because the proceeds went to pay off the note. for tax purposes, you sold for $X and you had a tax basis of $X so there is no loss. The note does not figure into the gain or loss.   of course, we really don't understand everything that took place. so if this isn't close to what happened, we'll need much more info.  

KL369
Level 2

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

Thanks for your reply @Mike9241 . Understandable need for more info. Here are facts:

2013: Paid cash $50K for silver buillion and had $25K note collateralized by it all

2014-2018: Paid in add'l approx $20K to maintain equity margin (storage charges and interest accrued)

2018: margin began to collapse forcing sale of about 70% of assets; all proceeds going to note; $0 to me

2019: fully liquidated as remaining 30% sold to satisfy note;$0 to me

broker didn't generate 1099B, but I'm entering it in TT HAB as if I had one using:

total $ invested + storage (+ interest?) as basis

but what is sale proceeds? the amount they got from the sale (which was below price I paid at this point) or $0 that I got?

Also it appears perhaps interest should show on form 4952?

 

Thanks so much for your help.

Mike9241
Level 15

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

the problem with 2018, unless you extended the return to 10/15/2019 it is now too late to amend. you only have 3 years from the original  due date 4/15/2019 or a properly extended due date of 10/15/2019

 let's ASSUME you did extend so you can amend

storage fees for a personal account are not tax-deductible.

interest would be investment interest and be reported on for 4952, to be of benefit you must be able to itemize. only the amount paid in the year paid is deductible for that year and limited to investment income. 

 

did you buy $75k paying cash of $50K and a note for the other $25K

or did you buy $50K paying cash of $25K and the note for $25K

   

let's say you paid $25K cash and took out a note for the other $25K. Your tax basis would be $50K

you sold 70% of the $50K in 2018 for X all of which went to satisfy the note. so your cost basis would be $35K and the proceeds X  was the cash received on liquidation - the sales price.  

 you sold 30% of the $50K in 2019 for Y all of it went to satisfy the note, so your cost basis is $15K and sales price is Y

KL369
Level 2

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

Thank you @Mike9241  again. Especially on the heads up for amending. I'm pretty sure it was extended giving me a couple weeks to amend.

It was the case of $75K total investment. But I follow your calcs and appreciate the clarification on the interest going to the form 4952. But just to verify: so when it was forced to sell, the proceeds are recognized as my proceeds eventhough I got nothing from it. Am I understanding correctly?

KL369
Level 2

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

upon reviewing your answer again, the 4952 interest is limited by the "income" which would be the sale proceeds at the time of each sale?

Thanks so much @Mike9241 . Great answer and great response.

Mike9241
Level 15

I had a 5 yr asset investment that was liquidated due to part of it covered by a note and part was collateral.is it correct for me to show $0 sale proceeds on my "1099B"?

no investment interest expense is limited to net investment income 
Gross income from property held for investment includes income,
unless derived in the ordinary course of a trade or business, from
interest, ordinary dividends (except Alaska Permanent Fund dividends),
annuities, and royalties. Include investment income reported to you on
Schedule K-1 from a partnership or an S corporation. Also include net
investment income from an estate or a trust.
Also include on line 4a (or 4d, if applicable) net passive income from a
passive activity of a publicly traded partnership (as defined in section
469(k)(2)). See Regulations sections 1.469-10 and 1.7704-1 (including
the transition rule of section 1.7704-1(l)) for details.
Net income from certain passive activities, such as rental of
substantially nondepreciable property, may have to be recharacterized
and included on line 4a. For details, see Pub. 925, Passive Activity and
At-Risk Rules, or Regulations section 1.469-2(f)(10).
If you are filing Form 8814, Parents’ Election To Report Child’s
Interest and Dividends, part or all of your child’s income may be
included on line 4a. See the instructions for Form 8814 and Pub. 550 for
details. 

 

 

qualified dividends and net long-term capital gains are excluded unless you make an election not to exclude them but then they are treated as ordinary income losing the special tax rate that would otherwise apply.

turbotax calculates net investment income automatically. any unused is carried forward. 

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