This schedule is being provided as a courtesy to assist shareholders in calculating the tax basis of their shares. Shareholders should consult their Forms 1099-DIV as provided previously for each year for dollar amounts, and shareholders should contact their tax advisors.
The following Q&A and Cost Basis Calculator are designed to help you understand the tax implications of the liquidating distributions paid to shareholders during the liquidation and dissolution of Hines REIT. Please note that this information is provided for illustrative purposes only and to help give you a general understanding of the consequences of the liquidating distributions. We are not providing legal or tax advice. Shareholders should contact their tax advisors for specifics regarding the taxation of their individual investments. The questions and answers are based on certain assumptions that may not be accurate.
1. Q: How will the final $.08 per share liquidating distribution be reported for tax purposes?
A: The final liquidating distribution received in 2018, will be reported to shareholders on their 2018 Form 1099-DIV in Box 9, “Cash Liquidation Distributions” which we expect to be mailed on or around January 31, 2019.
2. Q: What are the tax implications for Cash Liquidation Distributions for Taxable Accounts (such as individual or joint tenant type accounts)?
A: 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. Whether you report the resultant gain or loss as a long-term or short-term capital gain or loss depends on how long you have held the stock.
As the final distribution was made in 2018 and the account has been fully liquidated, if the total Cash Liquidating Distributions received do not exceed the cost basis of the investment, a capital loss is recognized.
3. Q: What are the tax implications for Cash Liquidation Distributions for Non-Taxable Accounts (such as IRAs)?
A: As long as the cash remains within the Qualified Account and is not distributed out of the Qualified account, receipt of Cash Liquidation Distributions by such an account generally will not have any immediate tax implications.
4. Q: How do I calculate the cost basis of the investment?
A: Use the calculator below, or take the following steps to make the calculation:
According to IRS pronouncements, including IRS Publication 550 (excerpts of which are reproduced below), the calculations should generally be computed separately for each block of shares owned by a taxpayer (i.e., shares acquired in multiple transactions at different times), although use of an average cost across multiple blocks of stock is permitted in certain cases. If you need assistance locating the documents or amounts required for Steps 1 and 2 above, please contact Hines Investor Services at 888.220.6121.
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*Excerpt from IRS Publication 550 (Investment Income and Expenses), page 21:
Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. These distributions are, at least in part, one form of a return of capital. They may be paid in one or more installments. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 9 or 10.
Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock. After the basis of your stock has been reduced to zero, you must report the liquidating distribution as a capital gain. Whether you report the gain as a long-term, or short-term capital gain depends on how long you have held the stock. [See Holding Period in chapter 4 of IRS Publication 550.]
Stock acquired at different times. If you acquired stock in the same corporation in more than one transaction, you own more than one block of stock in the corporation. If you receive distributions from the corporation in complete liquidation, you must divide the distribution among the blocks of stock you own in the following proportion: the number of shares in that block over the total number of shares you own. . . . After the basis of a block of stock is reduced to zero, you must report the part of any later distribution for that block as a capital gain.
Distributions less than basis. If the total liquidating distributions you receive are less than the basis of your stock, you may have a capital loss. 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. Whether you report the loss as a long-term or short-term capital loss depends on how long you held the stock. [See Holding Period in chapter 4 of IRS Publication 550.]