Here’s my understanding and suggested handling inasmuch as several of my investments generate nondividend distributions each year.
The tax treatment of nondividend distributions is set forth in Internal Revenue Code Sections 301(c)(2) (i.e., reduction of basis to the extent thereof) and (c)(3)(A) (i.e., recognition of gain from deemed sale or exchange of property to extent that nondividend distributions exceed basis).
Because there is no realization or recognition of any gain unless and until any nondividend distributions exceed remaining basis, there is nothing to report on the tax return. But once nondividend distributions begin to exceed remaining basis in a given tax year, then we should report the distributions, remaining basis and resultant gain on Schedule D and Form 8949 as if we had disposed of the investments. Please see IRS Publication 550 for more information.
For my investments that generate distinctions of this type, I maintain Excel-based tracking schedules that show original basis and subsequent reductions thereto on account of such nondividend distributions. I have not yet reached the point in the investment lifecycle of these investments to know whether the brokerage firms will themselves report any gains on account of distributions in excess of basis. But even if they do not, I will be able to rely upon my own tracking schedules for this purpose.
The tax treatment of nondividend distributions is set forth in Internal Revenue Code Sections 301(c)(2) (i.e., reduction of basis to the extent thereof) and (c)(3)(A) (i.e., recognition of gain from deemed sale or exchange of property to extent that nondividend distributions exceed basis).
Because there is no realization or recognition of any gain unless and until any nondividend distributions exceed remaining basis, there is nothing to report on the tax return. But once nondividend distributions begin to exceed remaining basis in a given tax year, then we should report the distributions, remaining basis and resultant gain on Schedule D and Form 8949 as if we had disposed of the investments. Please see IRS Publication 550 for more information.
For my investments that generate distinctions of this type, I maintain Excel-based tracking schedules that show original basis and subsequent reductions thereto on account of such nondividend distributions. I have not yet reached the point in the investment lifecycle of these investments to know whether the brokerage firms will themselves report any gains on account of distributions in excess of basis. But even if they do not, I will be able to rely upon my own tracking schedules for this purpose.
Statistics: Posted by Interstate780 — Mon Mar 11, 2024 10:26 pm