QWin: When adding Dividend Reinvestment shares, it adds that to the cost basis. Is there a way to no

Unknown

I am using the Canadian version. The cost basis should not include dividend reinvestment. It makes it seem like you bought more when you didn't.

NotACPA

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

volvogirl

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

If these are reinvested dividends then that is proper. A reinvested dividend is really 2 separate transactions. You get the dividend THEN you buy more stock. It's the same as if they sent you a check and then you bought more. So you do add it to the cost basis of the stock or fund.

Unknown

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

This makes sense - except ... my Fidelity reports show stock dividends as zero cost basis... That makes things confusing!

mindyflauto

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

I am interested in this subject as well. To the supervisor, your explanation doesn't quite make sense to me. When the 50 shares were sold, was the profit due to an increase in the price of the shares (from $10 to $20 a share). If so, then I still don't see the explanation of why the dividends add to the cost basis. 

Jim_Harman

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

Perhaps the example is unclear. Say you originally bought 100 shares at 7.00 then over the years received $500 in dividends which were reinvested at an average price of 10.00, buying an additional 50 shares. Your basis is now 700 + 500 = 1200.


If you sell the entire holding at 20.00 per share, you get 150 x 20 or $3000. Your gain is $1800, not $2300.

mindyflauto

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

ok, i get it now thanks!

Unknown

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

I have a similar issue.  Reinvested dividends should not be included in retirement accounts cost basis as it minimizes the gain/loss.  In a taxable account, it should be included in the cost basis as you declare this as income.
My concern with the current methodology for retirement accounts as it does not reflect the true taxable impact when you sell these funds.

Jim_Harman

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

Actually in a tax deferred retirement account like an IRA, you are taxed on the full value of the distribution.


In a Roth account there is no tax on distributions if you are over 59 1/2.


The cost basis has no impact on retirement account distributions except for Roth distributions taken early.

redgar

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

Interesting as I am noticing a difference in what Fidelity shows is my cost basis vs what Quicken shows.  Quicken is showing my reinvested dividends as cost basis (put in as buy) but Fidelity does not consider them additional cost basis and only shows original contribution as cost.  Sadly this makes it look in the red in Quicken but in the Green on Fidelity site.  

One of these is misleading

Jim_Harman

NotACPA

redgar

mshiggins

NotACPA

q_lurker

redgar

volvogirl

q_lurker

redgar

redgar

Rich_M

NotACPA

NotACPA - QW HBRP 2019 said:

The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

I have a stock that I hold in both a taxable account and an IRA account ... which is how I discovered Fido's inconsistency.

I'm a customer of Fido's "Private Client Group", and I've complained about this for years ... without any resolution.