Liquidating distribution tax treatment

Posted by / 14-May-2019 13:10

When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all.This is usually the case in bankruptcy liquidations.When it comes time to part ways, the partnership distributes its assets back to the partners and dissolves.Because the partnership is not a separate tax entity, any gains or losses pass through to the partners when the partnership liquidates.I will give the best answer that I can with the information provided.Publication 550 describes the tax treatment of this type of distribution.That allows the partner to receive distributions up to his basis as a tax-free return of capital.Partnerships might distribute land, equipment or other property as part of the liquidation.

Each partner has a tax basis in the partnership, determined by the amount of after-tax value he’s contributed to the partnership.

Basis in a partnership is a moving target, requiring frequent adjustments.

Partnerships don’t pay tax as an entity but pass a share of their income and deductions along to each partner.

Does Cash Liquidation Distribution in BOX 8 of 1099-DIV have to be reported?

This is the first time I have received a 1099-DIV with an entry in BOX 8. I understand that this is a partial return of capital, only reducing the cash basis of the sock, and could be there for informational purposes only. Thank you for giving me the opportunity to assist you.

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On Schedule D: Description of Property – Various Dates Acquired, Sold. Sales Price and Cost OR Other Basis, both entries could have the amount of distribution. You could put "various" under date purchased, and use the liquidation date as the sold date. And if you are sure that this is a total return of capital, then put the same amount as basis and proceeds as what is listed in box 8 of your 1099DIV. I would proceed as described in the publication under "stock acquired at different times".

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