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adjusting cost basis of investments

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unknown

Over the years, 1099,s have changed dividend income to return of capital. Therefore, cost basis on Quicken is too high.

With respect to MLP'S, K-1 has reduced basis but I have not found a way to reduce basis on Quicken.

Spinoff's have also reduced basis and Quicken never accounted properly for this.

I suppose I can tweek things by using return of capital to a cash account and then write off cash to some account that does not appear on reports.to provide proper adjustments, but I would like a simple logical approach if it exists.

Boatnmaniac

Over the years, 1099,s have changed dividend income to return of capital. Therefore, cost basis on Quicken is too high.

With respect to MLP'S, K-1 has reduced basis but I have not found a way to reduce basis on Quicken.

Spinoff's have also reduced basis and Quicken never accounted properly for this.

I suppose I can tweek things by using return of capital to a cash account and then write off cash to some account that does not appear on reports.to provide proper adjustments, but I would like a simple logical approach if it exists.

Richard, dividend income and return of capital dividends very different types of dividends and the tax code treats them very differently.

Dividend income are cash payments made to investors out of a corporation's profits. In taxable investment accounts, they are treated as normal income, much like interest income from a savings account is. They do not affect cost basis of that investment unless they are reinvested. Reinvested dividends are new investment lots with their own cost basis so that will affect the average cost basis for all shares of that asset that are owned.

Return of capital dividends are cash payments made to investors out of the sale of a corporation's assets. These dividends are generally not taxable events because they are considered to be a reduction in the value of the investment asset. Essentially they are the corporation giving you back some of what you originally paid for that asset. As such, ROC dividends reduce your cost basis for that asset. It is only when you later sell that asset that it becomes a taxable capital gains/loss event based upon the difference between the new adjusted cost basis and the sell price.

unknown

Is there a Quicken data entry field that will allow me to adjust the cost basis of a mutual fund to account for a 1099's box 3 (Non-cash Dividend Distribution). All i want to do is reduce (once a year) my cost basis of a security, so that this non-cash dividend will be tracked. no shares are involved so i can't figure out with entry box to use that will reduce my basis, but not expect me to record incoming cash (because this is a NON CASH transaction)

J_Mike

Is there a Quicken data entry field that will allow me to adjust the cost basis of a mutual fund to account for a 1099's box 3 (Non-cash Dividend Distribution). All i want to do is reduce (once a year) my cost basis of a security, so that this non-cash dividend will be tracked. no shares are involved so i can't figure out with entry box to use that will reduce my basis, but not expect me to record incoming cash (because this is a NON CASH transaction)

Hi Valerie

First order of business is some clarification.
I assume you are discussing info reported on a Form 1099-Div.
Line 3 of this form is labeled "Nondividend Distributions".
These nondividend distributions are typically Return of Capital (ROC).

I am also assuming that you have the situation where a fund has reported dividend distributions throughout the year - but after closing the books at year-end, the Form 1099 reports a reduced amount for dividends and the difference is reported as ROC.

Example: Fund ABC reports dividend income thru the year totaling $100.00 - this is what your QWin register reflects.
After closing the books, the distributions are reclassified in Form 1099 as;
Dividends = $85.00 and ROC = $15.00.
The total cash distribution is the same = $100.00.

To correct my QWin register to properly reflect the distribution classification, I;
Go back in the register and reduce the reported dividend income transaction(s),
Add the ROC transaction(s).
The net to cash balance will be zero.

Bottom line - your register will now reflect the correct dividend income and cost basis for the fund.

Please post back if my assumptions do not fit your situation or if you have additional questions.

unknown

Is there a Quicken data entry field that will allow me to adjust the cost basis of a mutual fund to account for a 1099's box 3 (Non-cash Dividend Distribution). All i want to do is reduce (once a year) my cost basis of a security, so that this non-cash dividend will be tracked. no shares are involved so i can't figure out with entry box to use that will reduce my basis, but not expect me to record incoming cash (because this is a NON CASH transaction)

Many times we discover these ROC and/or other decreases to cost basis years later and we wish to have our records reflect proper tax basis. It would not be practicable to go back into past years for the adjustment to dividend income as suggested. In other cases such adjustments can occur from gifts or inherited securities where the info occurs much later.

I find it hard to believe that in Quicken it is possible to adjust market values and not costs.

unknown

to JM. Your assumptions are correct, but the method you suggest to correct the entry is tedious and time consuming. Imagine several mutual funds, with monthly dividend reporting (so data re-entry times 12 to arrive at the annual correction) and that (to richardk's point) is not always even possible, if the ROC is not reported and caught each year.
I was hoping for a quicker fix to this (ie one catch-all year end adjustment entry) and not having to search through several years worth of brokerage reports and re-enter every monthly dividend payment.

J_Mike

to JM. Your assumptions are correct, but the method you suggest to correct the entry is tedious and time consuming. Imagine several mutual funds, with monthly dividend reporting (so data re-entry times 12 to arrive at the annual correction) and that (to richardk's point) is not always even possible, if the ROC is not reported and caught each year.
I was hoping for a quicker fix to this (ie one catch-all year end adjustment entry) and not having to search through several years worth of brokerage reports and re-enter every monthly dividend payment.

I use a shortcut method which works for most cases.
Using my example from above;
Enter a Misc Expense transaction with category _DivInc, for $15 - dated 12/31/yy.
Then enter the ROC transaction for $15.00 - same date.

Total dividends and cost basis for the year-end will be correct.

This does not work if you closed out a position during the year. In this case I enter the above transactions one day before the final Sell so that the ROC is properly reflected in the final sale.

J_Mike

Is there a Quicken data entry field that will allow me to adjust the cost basis of a mutual fund to account for a 1099's box 3 (Non-cash Dividend Distribution). All i want to do is reduce (once a year) my cost basis of a security, so that this non-cash dividend will be tracked. no shares are involved so i can't figure out with entry box to use that will reduce my basis, but not expect me to record incoming cash (because this is a NON CASH transaction)

@richardk

You touched on a method to adjust cost basis in your earlier post:

"I suppose I can tweek things by using return of capital to a cash account and then write off cash to some account that does not appear on reports.to provide proper adjustments, but I would like a simple logical approach if it exists."

Following this reasoning;
Use: Enter Transaction > Return of Capital.
In the "Transfer Account" field of the transaction dialog, select the account itself - the account you are working in.
The value can be either positive or negative as needed.
The result is a RtnCapX transaction.

The cost basis is adjusted with no change to the cash balance of the account.

I have used this approach to cleanup small residual cost basis values for closed out holdings - where finding the source of the residual errors was just too time consuming or otherwise impractical.

Ralph

The above,i.e. Return of Capital worked well for me. The particular fund now reflects accurately the brokerage statement