QWin 2017 H&B (R15): return of capital

Unknown

Home & Business 2017 R15:  I believe there is a bug of inconsistency of handling return-of-capital when there are multiple lots (separate buys of a security) purchased at different costs per share.   For example, on successive dates do buy, buy, return-of-cap, buy, return-of-cap, sell-all.  If you look in the register ("Investing") with the date set just before the sell-all and click on the "+"  to show the currently held lots, the "Cost Basis" of each of the lots is consistent with allocating the capital returned in proportion to the number of shares held at the time of the return-of-capital.  Now, go into Reports-Tax-Capital Gains (after the sell-all date).  Here the Cost Basis is consistent with allocating the return-of-capital in proportion to the original purchase value of the shares with out regard to any previous return-of-capital  (i.e. the original Cost Basis)

I understand either method is acceptable to the IRS but it doesn't work to use one in one place and the other in another place.

There are a couple of other methods of allocating return-of-capital that could be used:  You could apply the return-of-capital to the earliest lot (until it is zeroed and then move to the next lot)...but this method does not seem very logical.  A better method would be to allocate per the current Cost Basis of each lot (as adjusted from earlier return-of-capitals)...but I don't think the IRS includes that option.

In the 2014 Quicken (my prior version), there was this problem plus problems with return-of-capital on multiple lots in the processing of sales and in the Reports-Investing-Investment Transactions' realized gains.  With the sales error you could end up with zero shares held but still have a cost basis balance.  I haven't seen the sales issue in 2017 yet and I won't see the Reports-Investing-Investment Transactions because in the 2017 version they have removed the Cost Basis and the Realized Gain fields all together.

I submitted this in 2015 and a super user (q.lurker) responded agreeing with it but ended saying "Quicken access is not currently convenient".  I would think Quicken would be very responsive to super user input.... maybe that aspect will come back with the separation from Intuit.

A related minor issue in Quicken shows up in working with return-of-capital.  Some securities report dividends through the broker throughout the year.  And then on the 1099, they break this up into dividends (qualified and non-qualified) and return-of-capital and sometimes short and long term gains  (this aspect never showing up on the brokerage statement).   To adjust it in Quicken, I enter the amount transferred to the new category and a matching negative amount of dividend.   However, if you enter a negative amount in the dividend transaction (to remove the amount being transferred) directly on the register record, Quicken posts it as a positive amount.  If you hit edit on that transaction (popping up the window) and change it to negative there, it will post it negative .. as desired.  You can also start off using the window popped up with clicking the "Enter Transactions" button and it will accept the negative amount properly.  

mshiggins

Thanks for reporting this.

Unknown

Thanks for replying.  It's good to know this doesn't just go into a black hole.

In the submission I stated that in Quicken 2014 there was another return-of-capital related bug that could lead to a zero share holding but have a non-zero cost basis, and that I didn't know if it had been fixed in Quicken 2017.  I set up a simplified test for the issue (there may be an even simpler scenario) and it has not been fixed.  

For a security, do the following:

Buy 2 or 3 lots.  Lets assume the first lot is 1000 shares.
Sell 500 shares (Quicken will properly takes it from the first lot)
Do a return-of-capital (Quicken apportions this among the lots per the number of share held)
You can expand the security listing in the "Investing" portfolio and see that the individual lot basis values are proper and add up to the basis shown for the security.
Now Sell 250 or 500 shares.  Quicken properly takes these shares from the first lot.
But the total of the basis for the individual lots does not add up the the basis shown for the security.
 A SERIOUS QUICKEN BUG!

I did two difference test cases.  In one case, the basis for the first lot was wrong.  In the other case, it was the security basis that was wrong.  It's easy to see how this could lead to a zero shares and non-zero basis situation. 

I have these cases in a Quicken file and could provide that or more details on the specific tests I ran.