If you receive any "return of capital" payments, you must reduce your cost basis in the investment. If any portion of the payment exceeds your remaining cost basis, you must recognize a capital gain. See Return of Capital Pymts for a detailed explanation and example.
You are required to apply the return of capital to each tax lot separately. You cannot choose to apply it only to your high cost basis tax lots. You may end up with some tax lots where the cumulative return of capital payments exceed your original cost basis per share. In that case, you are required to recognize any excess return of capital payment for that tax lot as a capital gain distribution.
