Once you complete the steps below TurboTax will understand the transaction and you should not be a gain or loss that would affect your total income on the tax return.
- What is the best way to handle this? Report the cost basis as equivalent to the principal and adjust the cost basis of the bonds accordingly. You will realize any gain or loss once the asset is fully liquidated.
The holding period should be reflected based on how long you owned the asset at the time of the distribution. You can use 'Various' as the date acquired or your actual date acquired. If you use the actual date you will not need to select long or short term.
To reiterate, enter the distribution received as the sales proceeds, enter the same amount as the cost basis (because it is a return of investment) and the result should be zero gain/loss.
Reduce your original purchase price by the return of capital or principal distribution which will reflect the correct cost basis for sale. If you should receive any additional principal distributions in the future you should handle them the same way.
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