Liquidating distribution return of capital
This means that if the difference between the fair market value of the stock and its adjusted base – the price of the stock minus broker or commission fees – is zero, no tax is due on the amount.Payments received in excess of the total investment are subject to capital gains tax.Internal Revenue Service Form 1099-DIV, Dividends and Distributions, is a recordkeeping document that shows stock distributions received during the year.
Conversely, if an investor does not recover the total investment, she can report a capital loss.
However, advance planning can often result in better tax results.
Also, it may be possible to structure an asset sale in a way that doesn’t involve a corporate liquidation if that would mean lower taxes.
This means each shareholder must recognize a taxable gain (or loss) equal to the difference between the distribution amount and the shareholder’s basis in the stock relinquished in the liquidating transaction.
Assuming the shares have been held for investment for over a year, any shareholder profit will generally qualify for long-term capital gain treatment.
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If the corporation has loss or tax credit carryovers, they can be used to offset gains and taxes resulting from the asset sale.