"The factors below multiplied by the number of units you held at each quarterly distribution record
date represents your return of principal on the mortgage loan debt obligation for your Term NPI
interest in the Trust. This amount is required to be reported by the brokers and/or middleman on
Form 1099-B as gross proceeds. Per Form 1099-B instructions, Box 2 on your Form 1099-B should
show the aggregate proceeds from transactions involving stocks, bonds, other debt obligations,
commodities or forward contracts."
Okay, my 1099-B does have those amounts from Table E shown in Box 2a for each quarter. But as I would expect, nothing for Cost Basis in Box 3. So it is up to me to calculate those. But how?
Again from the tax booklet:
"The amount of gross proceeds attributable to your return of principal, which is the factor below as
stated in Table E multiplied by the number of units you held at each record date, would have a
basis equal to the return of principal amount."
Okay, that's where I'm lost. Appears to me to be a convoluted statement. I thought I was just deriving that return of principal from Table E. If that's the Cost Basis, as it seems to be implied in the statement above, then the gain or loss is always zero and there's no apparent reason to include it in the 1099-B. What am I missing here?
Since this part of the distribution is a return of principal, the basis will equal the proceeds so the net profit/loss is zero.
The reason to include it on your schedule D is simply to account for the entirety of the distribution. You don't want the IRS saying that you received x amount in distributions but only reported y of it.
Including the return of principal component in your return is a good idea just so that every part of the total distribution is recorded somewhere.
It also let's you check your math as OID interest + proceeds - admin expenses should equal the amount of your distributions for the year.