Return of Capital Does Not Change Cost Basis

Unknown
Unknown Member
edited May 2018 in Investing (Windows)
In Quicken Premier for Windows 2018 v. R7.5, I entered a ROC for a bond (to reflect a bond premium adjustment). However, there is no change reflected in the cost basis. In Holdings/Account Overview/Value, it shows the original basis. Also in Security Detail View/Holdings/Cost Basis, it shows the original basis. How to fix this?

Comments

  • mshiggins
    mshiggins SuperUser ✭✭✭✭✭
    edited April 2018
    Are you certain you chose the correct security for the return of capital?
    Quicken user since Q1999. Currently using QW2017.
    Questions? Check out the  Quicken Windows FAQ list
  • Unknown
    Unknown Member
    edited May 2018
    Good question. Yes, I chose the correct security. The odd part is that my portfolio includes a timber fund which has been paying out ROC for 10 years and these payouts always reduce the cost basis. Since you are a SuperUser, I will lay out the situation in more detail, in hopes that you can spot some mistake. This bond position was bought for $633.80 over par (1200 bonds for $120,633.80) in June 2017. The IRS requires my brokerage to lower the cost basis of the bond annually, until it reaches par when the bond matures or is called (2025). The brokerage now shows a cost basis of $120,581.59. That will continue to drop every year. So it no longer matches my basis in Quicken. I usually do not sell bonds before the call redemption. When that happens, the brokerage is going to show a redemption with a cost basis of $120,000. My Quicken report for Schedule D Capital Gains/Losses will need to match that when the bond is called in 2025. So rather than enter annual adjustments in Quicken, my idea was to enter one ROC adjustment to get the basis down to $120,000 right away. I entered this ROC transaction in the register 1 day after the purchase date.  Then I entered a balancing transaction of MiscExp with category _IntIncTaxFree for minus $633.80, to bring my cash balance back to the correct amount. I put this in 2 days after the purchase date. Originally I chose the bond as the security for the MiscExp, then thought that might be the problem, and revised it to no security. No change in the $120,633.80 cost basis. Finally I tried editing out the prices shown in the price history, hoping that my cost basis edit would "take" but no luck. Thank you for any advice you can provide.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited May 2018
    Reynold said:

    Good question. Yes, I chose the correct security. The odd part is that my portfolio includes a timber fund which has been paying out ROC for 10 years and these payouts always reduce the cost basis. Since you are a SuperUser, I will lay out the situation in more detail, in hopes that you can spot some mistake. This bond position was bought for $633.80 over par (1200 bonds for $120,633.80) in June 2017. The IRS requires my brokerage to lower the cost basis of the bond annually, until it reaches par when the bond matures or is called (2025). The brokerage now shows a cost basis of $120,581.59. That will continue to drop every year. So it no longer matches my basis in Quicken. I usually do not sell bonds before the call redemption. When that happens, the brokerage is going to show a redemption with a cost basis of $120,000. My Quicken report for Schedule D Capital Gains/Losses will need to match that when the bond is called in 2025. So rather than enter annual adjustments in Quicken, my idea was to enter one ROC adjustment to get the basis down to $120,000 right away. I entered this ROC transaction in the register 1 day after the purchase date.  Then I entered a balancing transaction of MiscExp with category _IntIncTaxFree for minus $633.80, to bring my cash balance back to the correct amount. I put this in 2 days after the purchase date. Originally I chose the bond as the security for the MiscExp, then thought that might be the problem, and revised it to no security. No change in the $120,633.80 cost basis. Finally I tried editing out the prices shown in the price history, hoping that my cost basis edit would "take" but no luck. Thank you for any advice you can provide.

    With each interest payment received on individual bonds that I own, I also get a transaction to record for the amortized bond premium.  That adjustment takes place semi-annually over the life of the bond rather than all at once as you are trying to do it.  But that should not make any difference.  

    So I end up with three transactions
    1)  Interest Income - for the amount of interest received
    2)  RtrnCap - as a positive value for the amount of the adjustment
    3)  MiscExp - as a positive value (it is a 'positive' expense) against the category _IntIncTaxFree (since these are tax-exempt munis.

    As you can see below, I do include the bond name in the MiscExp transaction.

    image

    For that particular bond, I have entered 5 RtrnCap transactions and the cost basis has reduced accordingly.  I am looking at the cost basis in the Security Detail view and in a portfolio view. 

    So I don't know why you are not seeing the adjustment effect on cost basis.  First idea would be that you have a placeholder on the bond transaction such that the cost basis is not properly defined.  

    Or, perhaps you have used the wrong security - one with a very similar name (it happens).

    Or (conjecture) you bond started with a $0 basis and Quicken is refusing to take the cost basis negative.

    Or ... something else.

    Bottom line, you basic description sounds correct - check the details.  
  • Unknown
    Unknown Member
    edited May 2018
    Thank you for the information. I would like to know what nice brokerage you have, that provides downloaded transactions for the amortized bond premiums. I am using E*Trade which does not do this. I do most of my buys on Zions Direct (cleared through Interactive Brokers). I transfer the bonds to E*Trade because Interactive Brokers does not allow Quicken transaction downloads via One Step Update -- and because the bond interest payouts are incorrectly formatted -- and they also do not provide transactions for amortized bond premiums. Complaints to IB yielded the comment that Quicken is for amateurs only and they might stop using it altogether. Sorry to digress.

    The bond with my problem was purchased in 3 lots at ZD. The first lot was transferred to E*T. Then I bought lots 2 and 3 at ZD and later transferred those in one block to E*T. My original problem was generated by trying to put in the ROC for the first lot only. I back-dated the entry to the day after I bought it, at ZD--but that lot was already sitting at E*T when I entered the transaction. Here was my problem. You cannot do this. You have to put in the ROC at the brokerage where the bonds are currently held. The limitation is that you cannot put in ROCs for individual lots; any ROC wlll affect all the lots of the one security. So I entered an ROC, for all 3 lots, and successfully reduced the total basis to par - $195,000. HOWEVER, Quicken does not distribute the basis correctly to the individual lots!! They should be $120,000, $50,000, and $25,000. Instead they show $119,643.92, $50,217.55, and $25,138.53. Is there a way to correct this?

    If my bond is called in 2025 in one block of 1950 bonds, then there is no problem, my adjusted basis of $195,000 will be reflected in the Quicken Schedule D Report. However, sometimes there are partial calls of holdings. Then I have to allocate which lots are being redeemed, and an accurate basis is required.
    image
    image
    Thanks for your help.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited May 2018
    Reynold said:

    Thank you for the information. I would like to know what nice brokerage you have, that provides downloaded transactions for the amortized bond premiums. I am using E*Trade which does not do this. I do most of my buys on Zions Direct (cleared through Interactive Brokers). I transfer the bonds to E*Trade because Interactive Brokers does not allow Quicken transaction downloads via One Step Update -- and because the bond interest payouts are incorrectly formatted -- and they also do not provide transactions for amortized bond premiums. Complaints to IB yielded the comment that Quicken is for amateurs only and they might stop using it altogether. Sorry to digress.

    The bond with my problem was purchased in 3 lots at ZD. The first lot was transferred to E*T. Then I bought lots 2 and 3 at ZD and later transferred those in one block to E*T. My original problem was generated by trying to put in the ROC for the first lot only. I back-dated the entry to the day after I bought it, at ZD--but that lot was already sitting at E*T when I entered the transaction. Here was my problem. You cannot do this. You have to put in the ROC at the brokerage where the bonds are currently held. The limitation is that you cannot put in ROCs for individual lots; any ROC wlll affect all the lots of the one security. So I entered an ROC, for all 3 lots, and successfully reduced the total basis to par - $195,000. HOWEVER, Quicken does not distribute the basis correctly to the individual lots!! They should be $120,000, $50,000, and $25,000. Instead they show $119,643.92, $50,217.55, and $25,138.53. Is there a way to correct this?

    If my bond is called in 2025 in one block of 1950 bonds, then there is no problem, my adjusted basis of $195,000 will be reflected in the Quicken Schedule D Report. However, sometimes there are partial calls of holdings. Then I have to allocate which lots are being redeemed, and an accurate basis is required.
    image
    image
    Thanks for your help.

    Well that certainly complicates the issues ... 

    For me, this accounting comes through a local Trust company and while I do get the accounting for the Amortized Bond Premium, I do not get the Quicken download connectivity.  So that is not going to let you choose a different brokerage. 

    I do believe even your brokerages should be reporting to you ABP on your annual 1099 statements, so I expect they may still be calculating it for you on an annual or semi-annual basis.  I don't know the specifics of the calculation, but I suspect it is on a daily basis (the amount for say Mar 1 through Aug 31 (184 days) will be a tad different than the amount from Sep 1 through Feb 28/29 (181/2 days).  I would also suspect it is spread out through the maturation date of the bond.  For a 7/1/2045 bond, that becomes a pretty small adjustment with each payment.   

    Where your complexity exceeds mine is:  multiple lots, and moving from one account to another - the Add Shares component.  

    You are right that RtrnCap in Quicken applies the basis adjustment uniformly per 'share' across all lots.  In most cases that is reasonable, but not in your case.  You should be seeing a different ABP applied to each of your three lots, since the premium you paid for each is different and the amortization period for each is different.  I don't see RtrnCap working for you directly.  

    To get to your original goal, I would enter the Buys as you have (spending the real world cash), then follow that with a Remove Shares for that lot, followed by an Add Share for that same lot with the cost basis reduced accordingly.  You should then be able to transfer the lots from ZD to E*Trade as you have been doing.  That approach may immediately have some impact on some performance measures as your cap gains immediately changes.  Your decision if that is important.  

    For the more rigorous stepped approach (assuming you can get numbers for the semi-annual ABP), you would do the same type of MiscExp / RtrnCap I cited, follwed by the Remove Shares and 3 Add Shares each time to more correctly balance the basis across the three lots === Painful!

    Or your let the basis allocation be wrong until such time as you do need the right values for the sales/calls/maturation.  Then you do the Remove / Adds as necessary to rectify the numbers.  
  • Unknown
    Unknown Member
    edited May 2018
    Yes, I am getting the ABP on my year-end 1099 statements. As long as I am not disposing of a bond prior to call, I would prefer to make one adjustment to par in Quicken. I understand the cap gain measure would be slightly off, immaterial to me. The rigorous stepped approach is indeed painful, as I have 18 bonds that would need work on this issue.

    I tried the suggested Remove Shares / Add Shares for the first lot of 1200 shares, but the old basis still appears at the ZD to E*Tr transfer, and in the Account Overview. I did not touch the transfer transaction. Here is the Security Detail View:
    image

    I deleted the above and tried Remove/Add of all 1950 shares, but that replaced the 3 lots with one lot. Maybe I should first delete all the ZD to E*Tr transfers, then put in the Remove/Add Shares for the individual lots, and then enter the transfers?

    Thank you.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited May 2018
    Reynold said:

    Yes, I am getting the ABP on my year-end 1099 statements. As long as I am not disposing of a bond prior to call, I would prefer to make one adjustment to par in Quicken. I understand the cap gain measure would be slightly off, immaterial to me. The rigorous stepped approach is indeed painful, as I have 18 bonds that would need work on this issue.

    I tried the suggested Remove Shares / Add Shares for the first lot of 1200 shares, but the old basis still appears at the ZD to E*Tr transfer, and in the Account Overview. I did not touch the transfer transaction. Here is the Security Detail View:
    image

    I deleted the above and tried Remove/Add of all 1950 shares, but that replaced the 3 lots with one lot. Maybe I should first delete all the ZD to E*Tr transfers, then put in the Remove/Add Shares for the individual lots, and then enter the transfers?

    Thank you.

    For what you are asking to do, a one-time adjustment immediately after purchase, you would want to enter the Remove / Add at that time., as you did for the 1200 bond lot. But inserting such a pair when there are later transfer actions will not alter those transfers -- again as you noted.


    The Shares Transferred action generates a Remove Shares transaction in the original account and a series of Add Shares transactions in e receiving account. Once those transactions are generated and initially entered, no connection between them remains. That means that you can then edit either side (Remove or Add) and the other side is not affected by the edit.


    So your options become

    First, add in the Remove / Add pair for each purchase to set the cost basis as you desire, then

    A). Delete the transfer generated transactions and redo the transfers (that will pick up the newly adjusted basis values), or

    B). Edit each of the esisting Add share transactions in the e-trade account to reflect the desired basis values. The remove shares side should not need to be edited.
  • Unknown
    Unknown Member
    edited May 2018
    Option A -- it works. Thank you.
This discussion has been closed.