Cash liquidating distribution
If you acquired stock in the same corporation in more than one transaction, you own more than one block of stock in the corporation. You can report a capital loss only after you have received the final distribution in liquidation that results in the redemption or cancellation of the stock.
After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain.
In general, a stockholder's basis equals the amount he pays to acquire stock in a corporation, including commissions and related fees.
If a person assumes ownership of stock through means other than purchasing it, the IRS provides guidelines for determining the individual's basis in the stock in IRS Publication 550.
A: A Cash Liquidation Distribution is a non-taxable distribution until such time that the total Cash Liquidation Distributions received exceed the cost basis of the investment.
If the Cash Liquidation Distributions exceed the cost basis, the portion of the Cash Liquidation Distributions that exceeds basis is considered a capital gain and taxed accordingly.
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It is taxable when the total amount of the cash liquidation distribution exceeds the original investment in the stock.