topic Return of Principal - REIT in Investors & landlords

Return of Principal - REIT

LMAllen — Mon, 30 Mar 2020 22:13:21 GMT

I imported our 1099s from our investment accounts. Our 1099B shows a sale of a REIT which is not a sale, but a return of principal. It shows zero as the quantity sold and "Return of Principal" as additional information for the transactions. However, TurboTax views it as a sale and requires a cost basis. How can I enter this correctly so that it is not seen as a taxable event?

Re: Return of Principal - REIT

MarilynG1 — Mon, 30 Mar 2020 22:34:32 GMT

Enter a Cost Basis equal to the Sales Proceeds so the return of principal is not taxable.

If that is the only transaction reported on your 1099-B you don't need to enter it in TurboTax.

Click this link for info on Return of Capital.

Re: Return of Principal - REIT

LMAllen — Tue, 31 Mar 2020 18:55:01 GMT

Thanks a bunch! Had tried that. However, when the next screen asked for much more information, I got flummoxed and failed to thoroughly read the instructions to surmise I should just let the default information suffice. All fixed.

Re: Return of Principal - REIT

fpickart12 — Tue, 09 Mar 2021 20:32:02 GMT

I have a sale of securities shown as return of principal with no cost basis but TT shows it as a gain for the whole amount.

Re: Return of Principal - REIT

ToddL99 — Wed, 10 Mar 2021 16:16:28 GMT

Please see @marilynjoy 's response above: "Enter a Cost Basis equal to the Sales Proceeds so the return of principal is not taxable".

See @DianeW 's excellent summary and instructions below:

This is considered a "nontaxable distribution" and/or "return of capital/principal" depending on the facts and circumstances. Read further.

The cost basis does apply here. A return of capital is a return of some or all of your investment in the stock of the company and reduces the basis of your stock asset but is not a taxable event until your basis in the stock goes to zero, at which point it becomes a capital gain.

For example, if you originally paid $100/share for 100 shares , the cost basis of all the shares is $1,000. If you get a $5/share principal payment (return of capital), instead of having a cost basis for the 100 shares of $1,000, you now have a cost basis of $500 ($1,000 original cost basis minus $500, which is 100 shares times the $5 per share capital distribution).

In TurboTax, you should enter the cost basis to be equal to the proceeds when you have a return of capital.
A distribution generally qualifies as a return of capital if the corporation making the distribution does not have any accumulated or current year earnings and profits. Once the basis of your stock has been reduced to zero, any further non-dividend distribution is capital gain. At this time you would enter zero for the cost basis.