RtrnCap & Share Balance Discrepancy

Gerry Blue

QWin 2018 Premier - Windows 10

I recently created a new Quicken file for an elderly relative with failing health. He has some GNMAs in an IRA that produce occasional (monthly?) interest transactions as well as return of capital (RtrnCap) transactions. I'm new to RtrnCap and have done some reading so I understand basically what's going on but need some help dealing with these things in Quicken.

I'm now getting a list box of GNMAs with share balances reported by the brokerage that don't match the share balance in Quicken. I'm guessing this is a reasonably common problem but I haven't yet found a question here that directly addresses this situation. Please guide me to the thread if I've missed it.

One solution I've come up with is to click the "Details" button to the right of each out-of-balance item in the list and select the "Create placeholder transaction for the difference" radio button. It seems to work okay but then I'm looking at going through that process for each RtrnCap transaction every single month. Surely, there's a better way?

How can I easily adjust the share balance change that occurs when a RtrnCap transaction is downloaded for GNMAs?

NotACPA

For a RTRN_CAP in a GNMA, you need so sell some portion of the GNMA in order to produce the money that's being returned to you.
Creating Placeholders is not a good idea, as that messes with the money's and share balances for that security foreverafter.

Sherlock

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

Gerry Blue

NotACPA - QW HBRP 2019 said:

For a RTRN_CAP in a GNMA, you need so sell some portion of the GNMA in order to produce the money that's being returned to you.
Creating Placeholders is not a good idea, as that messes with the money's and share balances for that security foreverafter.

Wouldn't selling some portion suggest a capital gain or loss? My understanding is that RtrnCap distributions are not taxable.

Gerry Blue

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

I would love to go back and input a complete transaction history and get rid of the placeholder transactions altogether but the complete history is not available. He had some of these GNMAs for 20+ years and the FI only goes back 10 years. He may have 30 years worth of statements somewhere but I kind of doubt it.

I'll wait a week or so to see if things magically clear up.

Sherlock

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

You don't need to input a complete transaction history.  You only need to establish an accurate cost basis for the transaction history you have available.  For example, use an Add - Shares Added transaction to establish a share balance and cost basis prior to the first available transaction.  If you can not obtain an accurate cost basis for the shares held at that time, it will not be possible to determine an accurate gain or loss for those shares.

NotACPA

NotACPA - QW HBRP 2019 said:

For a RTRN_CAP in a GNMA, you need so sell some portion of the GNMA in order to produce the money that's being returned to you.
Creating Placeholders is not a good idea, as that messes with the money's and share balances for that security foreverafter.

Not if you sell them for cost.  And, the fact that Placeholders are involved states DEFINITIVELY, that the number of shares that you show in Q differs from the number of shares that the Brokerage is holding.
P.S., it's not really a "Return of Capital" in the traditional sense.  It's payment of the principal portion of the mortgages represented by GNMA shares.  As those GNMA mortgages get paid down, so does your number of shares IN those mortgages.

Sherlock

NotACPA - QW HBRP 2019 said:

For a RTRN_CAP in a GNMA, you need so sell some portion of the GNMA in order to produce the money that's being returned to you.
Creating Placeholders is not a good idea, as that messes with the money's and share balances for that security foreverafter.

Note: A return of principle from a GNMA is generally a taxable event, the difference between the cost basis and the amount received determines the capital gain or loss. With respect to an IRA, there is no tax on capital gain or loss but, for a traditional IRA, any withdrawal is taxable as income.  

Gerry Blue

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

What I'm getting from this is that keeping the Quicken share quantity in agreement with the FI share quantity without considerable manual transaction entry each and every month is not possible.. Whether I'm using placeholders or "selling" shares, keeping my Quicken file in sync with reality is a considerable monthly task since he has quite a few of these little beasts to manage. That is disappointing.

Tom Young

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

Why don't you explain why the securities seem to be losing shares? 

As was said, a simple return of capital entry shouldn't be affecting the number of shares. 

I'm guessing that what's happening is that what you are seeing as returns of capital are more properly reported as "sales" with resulting gain or loss and that the FI holding these securities is reflecting that in what you're seeing online.  But if they don't know or don't track the actual premium or discount which the relative paid for these securities all they can send to you is the "principal" portion of the payment and it's up to you to translate the so-called return of capital into an actual sale.

Gerry Blue

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

I'm not sure I can explain why the securities are losing shares but when I update from the FI via direct connect, the data that I get is reporting a reduced share quantity in conjunction with the RtrnCap transaction. Here is an example. The following image is grabbed from the Quicken list of mismatched securities after downloading the RtrnCap transaction on 7/20.

Tom Young

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

Well, there you go.  It looks like the FI is essentially reporting it as a "sale" but can't cobble together an actual, downloadable sale, presumably because they are not tracking your relative's basis given the (probably) premium paid  Quicken certainly doesn't have any "native" way of tracking this situation and if you don't have the history available to you I don't see how you can ever put this to right.

Gerry Blue

NotACPA - QW HBRP 2019 said:

For a RTRN_CAP in a GNMA, you need so sell some portion of the GNMA in order to produce the money that's being returned to you.
Creating Placeholders is not a good idea, as that messes with the money's and share balances for that security foreverafter.

It doesn't matter in this case since you correctly pointed out that the GNMAs are in an IRA but the information I'm finding online contradicts what you're saying about the taxability of principal repayments. For example, https://finance.zacks.com/gnma-taxation-7593.html has the following excerpt:

The monthly payments you receive from a GNMA bond is not entirely composed of interest. Ginnie Mae bonds are mortgage pass-through securities and the monthly payments will include some repayment of principal as well as your interest earnings. Only the interest portion of the payments from your GNMA bond is taxable income and the 1099 will break down what portion of what you received was interest and what was return of principal.

Sherlock

NotACPA - QW HBRP 2019 said:

For a RTRN_CAP in a GNMA, you need so sell some portion of the GNMA in order to produce the money that's being returned to you.
Creating Placeholders is not a good idea, as that messes with the money's and share balances for that security foreverafter.

The interest portion is not the return of principle.  The return of principle is handled as capital gain or loss.  If you read further on the page you referenced, you'd find:

It is very probable that you paid a premium for your GNMA bond and those losses on the return of premium are tax-deductible capital losses. When you get a $1,000 in principal back from a bond you treat the result as the payoff of a $1,000 bond, and if you paid $1,050 for that bond you have a $50 loss. The result would be claimed as a long- or short-term capital loss, depending on how long you have owned the GNMA bond. If you did buy your GNMA at a discount, the price gain must be claimed as a capital gain.

Gerry Blue

NotACPA - QW HBRP 2019 said:

For a RTRN_CAP in a GNMA, you need so sell some portion of the GNMA in order to produce the money that's being returned to you.
Creating Placeholders is not a good idea, as that messes with the money's and share balances for that security foreverafter.

I stand corrected. You're absolutely right. Thank you!

Sherlock

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

The shares represent the principle holding.  GNMA's pay interest and return principle.  The interest payment does not impact the number of shares held and is treated as income.  The return of principle is handled as a sale of shares and the difference between the returned principle and the cost basis is treated as capital gain or loss.  The return of principle should be recorded as Sold not RtrnCap.

Gerry Blue

Sherlock said:

A RtrnCap should not adjust the number of shares in an account.  A RtrnCap should only adjust cost basis of the held security and provide the difference as cash.

I never allow Quicken to create placeholder transactions.  Placeholders are share balance adjustments without cost basis used to reconcile with the balance obtained from the financial institution.  Instead of placeholders, you should be entering appropriate transactions to enable Quicken to track the cost basis.

Note: Some financial institutions do not provide the adjustments to share balance concurrent with transactions.  In other words, you may only need to wait a few days for the dust to settle.

I think I'm clear on the difference between interest and principal and the fact that the principal in the GNMAs is getting depleted as time goes by. It seems the conclusion we're coming to is that the FI isn't giving me the transactions in a way that automatically adjusts my Quicken file correctly. I'm still at a place where it appears I have to do a bunch of manual work every month to keep my file in sync with the FI which is disappointing. Thank you for trying to help.