Originally Posted by Paw8s8
I got a nondividend distribution from a stock I owned. The stock that gave the distribution then was bought out by another company (both are REITs). Now I know that this reduces the cost basis of my original stock. But do I somehow report that nondividend distribution as a capital gain in the year the original stock was bought out or do I wait till I sell the stock of the company that bought the original stock.
Thanks for your time.
In the year the original stock was bought out.A nondividend distribution reduces the basis of your stock. It is not taxed until your basis in the stock is fully recovered. it is a return of your investment in the stock of the company.
When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock.