I have a 1099-B with N/A under cost basis on my form. It says under additional information, "return of principal." TT wants a cost basis. What am I supposed to put there?
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you have to compare the return of capital amount to your tax basis in the security. if your tax basis is higher then set the cost to equal the proceeds and then you have to reduce your tax basis in the security by this amount. if the proceeds exceed your tax basis, use your tax basis as the cost.
I now have more information on this. This was an amount of money given as the result of a settlement of the PR bankruptcy. It was given to those that owned PR bonds at the time of the bankruptcy. It did not take the place of our PR bonds (which we still own). There was no capital amount previously expended. It is considered a "Return on Principal." It is reported to the IRS on a 1099-B. So there is no original cost to buy a bond to use as the cost basis. So what do we use as the cost basis?
A return of principal reduces your cost basis. Thus, there is nothing to report on your tax return provided the return of principal does not exceed what you originally paid for the Puerto Rico bonds (we assume your reference to "PR" relates to the bonds issued by Puerto Rico). If the return of principal is greater than your original cost basis, then the excess needs to be reported on your tax return as a capital gain.
Thus, because you still own your PR bonds, there is nothing to report on your tax return, unless the exception as discussed above applies. Keep your records in the event you dispose of your PR bonds because you will need to adjust your cost basis based on the return of principal. You can make any adjustment you need to make in TurboTax. If you should dispose of your PR bonds, then you report your original cost basis, and in the relevant field in TurboTax you also report the adjustment based on the return of principal.
I asked my (major) brokerage for guidance on this. Their CPA says I can do what you recommend but they recommend reporting it as acquired and "sold" on the same day and using the principal amount as the cost basis.
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