Cash liquidation distributions are an amount of capital that is being returned to you. It is generally a return on your principal investment. It is only taxable to the extent that it exceeds your basis in the investment.
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Cash liquidation distributions are an amount of capital that is being returned to you. It is generally a return on your principal investment. It is only taxable to the extent that it exceeds your basis in the investment.
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When you are on the "Your Income" page:
I have this situation. Is there nowhere I need to indicate that this is not a sale of stock, but rather a complete liquidation of the REIT with a cash distribution to me? Perhaps the IRS doesn't care about the label? Also, to piggyback on the original question and answer: when entering the "total purchase price," is it fair to say I should reduce that by the annual return of investment? I understand that normally you don't reduce your basis by annual dividends, but I did get a "Tax Capital Statement" analysis letter from the company that indicated that I should do so. Not sure why.
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Actually, there may not be any reason for you to put that amount anywhere in your income tax return, depending on your situation.
You can think of a liquidating distribution as very much along the lines of a return of capital. If you have a basis in the stock AND the liquidating distribution is less than your basis and is not a "final" distribution then you don't have to enter anything at all. In your own records you reduce the basis of the stock.
If the liquidating distribution is more than your basis then you do have a reportable sale. The liquidating distribution is reported as a sale with the liquidating distribution being the "proceeds" of the sale.
Tom Young