Does a “cash liquidation distribution” count as a ‘tax loss sale’?

Home Fairmark Forum Taxation of Investments Does a “cash liquidation distribution” count as a ‘tax loss sale’?

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  • #36954
    rc77z
    Participant

    I purchased Yahoo! (YHOO) stock long ago and never sold it.

    It eventually became Altaba and in 2020 the stock was liquidated in a “cash liquidation distribution.”

    I am wondering why this appears as a line item on a 1099-DIV rather than as a ‘stock sale’, which would allow me to make use of the ‘tax loss.’

    Or, is there a way I can still do that?

    Thanks. Any information will be appreciated.

    #37261
    Kaye Thomas
    Moderator

    Although the liquidating distributions were reported on 1099-DIV, the transaction is treated as a sale. You can report a loss as of the time of the last distribution if the total of all the liquidating distributions is less than your basis in the shares. Note that if any of the liquidating distributions were made in 2021, you can’t claim the loss in 2020. The information appears on this page:

    Altaba liquidation

    #46232
    rc77z
    Participant

    Thank you. Re: “You can report a loss as of the time of the last distribution…” — by “last” do you mean “most recent” -or- “the final” distribution that Altaba makes — i.e., once there will be no more distributions?

    In other words, must one wait until the stock no longer exists to claim a loss?

    TurboTax (online) appeared to be aware of this type of income. So I gave it the figure on the 1099-DIV and assumed it knew what to do with it. Was that assuming too much?

    (I’m going through the documentation on the “Altaba liquidation” webpage, so apologies if these questions are answered there. So far I haven’t seen that they are.)

    #46298
    Kaye Thomas
    Moderator

    Last means final. The idea is that until then, it is at least theoretically possible you’ll receive enough distributions to eliminate your loss. But even if you’re certain this will not be the case, the rule is no loss until the final distribution.

    #46424
    Kaye Thomas
    Moderator

    Oh, and TurboTax can’t know what to do with this information unless it knows the basis of your shares, and also whether you’ve received your final distribution. I don’t know what they do when you enter this item without any other information. Maybe nothing, or maybe treat it as gain (assuming zero basis until you enter some basis).

    #54720
    rc77z
    Participant

    Thanks again. To deal with this correctly, do I have to assemble my full history with the stock, so that once the final distribution occurs I can make accurate determinations of modified cost basis as the latter changed following each distribution up through the last one?

    I don’t see how else I could determine ‘cost basis’ for the distribution in 2020 — i.e., without first accounting for all prior distributions that have occurred and their respective effects on the cost basis, going back to that of the original purchase.

    (I have the original purchase information — from 12/31/1998 — but not any details of whatever distributions have occurred other than those in 2019 and 2020.)

    #56166
    Kaye Thomas
    Moderator

    The answer depends on the nature of previous distributions. If they were dividend distributions, they don’t affect basis. If they were nondividend distributions, they reduced your basis, and will reduce the loss you can claim upon receiving the final liquidating distribution. If the total of all your nondividend distributions and liquidating distributions exceeds your basis, you have a gain, not a loss, and you have to report gain in the year those distributions exceed basis, rather than waiting until the year of your final liquidating distribution.

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