ESOP Section 1042 Rollover to QRP

pcoop

I would appreciate learning how others have used Quicken Windows to adjust the "cost" tax basis of investments made with funds from an ESOP Section 1042 rollover to stocks that qualify as Qualified Replacement Property (QRP); since the tax basis stays with the original ESOP value rather than being the purchase cost of the QRP.

q_lurker

A can't address this from the ESOP rollover aspect, but in general a Shares Transferred between Accounts (Enter Transactions button) should be used to move assets from one account to another.  (It can also be used as a 'transfer' within the same account.)  That will generate Add Shares transactions in the receiving account.  Each of those Add Shares transaction can be individually edited to reflect a new adjusted cost basis.   

Tom Young

I don't think there's any easy, straight-forward way of handling this in Quicken that everybody would agree is "perfect".  My assumption here, based on your statements, is that the basis (and maybe the holding period?) of the stock sold to the ESOP "carries over" to the replacement stock.  There's many ways that you might enter this in Quicken, making use of "Remove" and "Add" actions to get you to the correct ending point.

You've got a sale of your stock to the ESOP as that generates the cash that allows you to buy your replacement stock.  Presumably this sale will generate a large gain, a gain you simply ignore for any reporting purposes since it's deferred for statutory purposes.  You then use the cash to buy your replacement shares, driving the cash to $0.  Having done that you then do a Remove action for each "new" stock, followed by an "Add" action to reinstate the stock with the correct holding period(?) and basis.  I have no idea what methodology would be used to allocate $100,000, (assumed for illustration purposes), of a single stock's basis over a new portfolio of a dozen different stocks with an actual purchase price of, say, $3,500,000, but I assume there's some guidelines that dictate the process.

pcoop

Thank you so much for the thoughtful responses. I had reviewed messages that described the "Remove" and "Add" strategies but, unless I am implementing incorrectly, that strategy creates artificial performance results for the QRP in the investing screens. I may build a test bed and try "exchange" and see if it could be a good work around, in spite of the allocation problem noticed above. I hope Quicken picks this for continuous improvement as I believe it is common for many small business owners. Thanks again.

Tom Young

"that strategy creates artificial performance results for the QRP in the investing screens."

Absolutely.  That's why there's no "perfect" method available: you can't have a correct basis for statutory purposes AND a correct basis for investment analysis purposes.  I'd probably opt for the correct statutory basis in my main file, and if I wanted to track "real" investing performance simply set up another file with nothing in it but the QRP Account that has the correct purchase prices.