The return of principal payments is often called either a return of capital or a nondividend distribution. As a return of your original investment (cost), it reduces your basis. However, your return of capital is not taxed until after it reduces your basis to zero. If you cannot identify specific shares, reduce the basis of the earliest stock purchases first. This information may be reported to you on a Form 1099-DIV, Dividends and Distributions in box 3.

Once you've adjusted your basis to zero, report any additional returns or distributions (other than dividend distributions) on Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets. Any gains from stock held longer than a year should be reported as a long-term capital gain.