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mike purchased 200 shares of xyz stock for $1,500 in 2018. xyz had no earnings or...

mike purchased 200 shares of xyz stock for $1,500 in 2018. xyz had no earnings or profits in 2018 or 2019. Mike received $1,000 return of capital in 2018 and a $1,000 return of capital in 2019. what should be reported on his 2019 tax return?

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Answer #1

Return of capital is not a taxable event and it reduces the adjusted basis of investment and any excess received beyond adjusted basis is capital gain. Since there is no profit or earnings no question arise to treat it dividend income.

So first 1000 received reduces its adjusted basis to $500 and again $1000 received in 2017 makes its adjusted basis to 0 and a capital gain of $500 is reported in 2017.

capital gain is $500 should be reported on his 2019 tax return.

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