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Cost basis is calculated incorrectly when reinvesting mutual fund dividends

When I receive a dividend from my mutual fund and it is reinvested in the fund, Quicken adds the reinvestment to my cost basis. This is incorrect.

Example - I invest $1000.00 in a mutual fund. This is my cost basis.
The fund pays a $50.00 dividend which is reinvested in the fund.
For simplicity sake, I now own $1050.00 of that fund
Quicken says my cost basis is $1050.00, but my investment was only $1000.00
My Fidelity statement agrees with my calculation, not with Quicken.

Is there a fix for this issue?

Best Answers

Answers

  • Bill Ferguson
    Bill Ferguson Windows Beta Beta
    Thanks for the response. The investment is in my IRA. I understand that I received a dividend (received income), and then "spent" that money as a further investment into the fund, and my true investment basis is the original investment plus the reinvestment.
    What I like to look at is how much my original investment has compounded and grown, so I will look at both the Quicken and Fidelity calculations, realizing they are two different (and correct) calculations.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    "My Fidelity statement agrees with my calculation, not with Quicken."
    Quicken accounts for cost basis as that term is used in under  Generally Accepted Accounting Principals (GAAP) and to the best of my knowledge and belief all reputable financial institutions do likewise.  So I certainly would expect Fidelity would have the correct cost basis for the security and that number would agree to Quicken.
    However, there's also the issue of "statutory accounting" (e..g., "accounting" as defined by tax law), and there certainly can be big differences between statutory account and GAAP.  So, for income tax purposes a traditional IRA is considered to have a "cost basis" equal to all non-deductible contributions made to the account.  Is there any chance that Fidelity is using the IRS's definition of basis here, i.e., the initial $1,000 contribution?  Even that notion is pretty far-fetched as how would Fidelity know that the contribution was non-deductible in the first place?
    You may want to follow up with Fidelity about this.
  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    Fidelity (I'm their client also) is inconsistent in the matter.  If the ReinvDiv is in a Taxable account ... they add the $ to your cost basis.  Which is correct.
    If the ReinvDiv is in a tax-advantaged account, they don't ... which is incorrect.
    A ReinvDiv is, in concept, no different than if they had sent you a check and you returned it with a request to "buy more".  In both cases, you're adding money to what you have already paid for the fund in order to acquire more shares.
    Fidelity claims that because there's no CapGains inside the tax-advantaged account that there's no purpose of "adding to the cost basis".  While that might be true, not adding to the cost basis totally screws up any performance reporting on that security.
    Say that you sold that original $1000 of funds, leaving the $50.  So NOW, the funds bought with the $50 would have a cost basis of $0 ... and a performance return of (who knows what, it involves dividing by Zero).
    Q user since DOS version 5
    Now running Quicken Windows Subscription,  Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    But they do add "outside" money to the basis figure?  That, easily, could cause mistakes on the tax side.  
  • RE: Investment Cost Basis Problem: We just transferred from TD Ameritrade to Schwab and when I transferred all transactions in TDA to Schwab in Quicken, one of the 10 stock funds ended up not coming over properly. The number of shares are correct but the basis isn't right. Any tricks to updating only the cost basis?

    Thanks ... Chuck Pritchard Texas
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited January 2020

    Typically you wouldn't transfer transactions from one Account to another Account.  Instead you'd use the "Shares Transferred Between Accounts" action.  That would create a Remove action for each security in the "from" Account and a series of Add actions in the "to" Account, one for each lot of each security. 
    If you just did this transfer of transactions, you might try restoring from a backup just before you did this and try the "Shares Transferred" action instead to see if that works.
    Otherwise you might rename a backup that has all the transactions for that one security, open the backup, print out an Investment Transactions for that one security, and see if you can spot what's wrong by comparing that report to what you're seeing in the new Account.
  • Tom:

    Thanks for the quick reply! I actually used Quicken to "Shares Transferred between Accounts" to move all shares from TD Ameritrade to Schwab. Just one account cost basis didn't match. So just need a way to correct the Cost Basis. Not sure how I'd correct the cost basis. Any suggestions? Thanks ... Chuck
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    Well, first you have to figure out where the error is. 
    First thing to do I'd think is to look at the lot detail for that security in the "just before transfer" backup file and then compare that to the "just after transfer" file to see if the difference comes down to one particular lot.  If that happens to be the case then I'd think you could delete the "Added" action for that lot in the current file and then create your own, correct, "Added" transaction to get things right.
    I'm still puzzled, though, that there's a problem here.  Maybe another thing to try is to force a recalculation of transactions in the "just before transfer" file by doing a {CTRL}-Z keypress in the relevant Account to see if there's some hidden mistake and the "before transfer" cost numbers change, maybe to the numbers that got transferred over?
    Any placeholders anywhere in either the old file or the new file? (Edit > Preferences > Investment transactions > tick "Show hidden transactions")
    Does the financial institution holding the Account have good cost date information to ensure that you have the right number in the first place?
  • Tom:

    Thanks again for the quick reply!

    I'll have to get back with you in the next few days ... have a pretty full schedule.

    At first glance going to be a little hard as I have put off addressing this for 3 + months and have a lot of activity entered for that period so it would affect the work I've done in the interim.

    I'll study & see if I can find a solution early next week & let you know.

    Thanks again ... Chuck
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    "have a lot of activity entered for that period so it would affect the work I've done in the interim."
    If you have saved backup for the "just before" and "just after" days I'd just deal with those two files to figure out the problem and determine how to fix it.  Once you've got that in hand just open your current file and make the fix or fixes as an historical entry.
  • Tom:

    What/how do you do a "historical entry"? I just need to update the "cost basis" to the amount that shows on my Schwab statement.

    Thanks,

    Chuck
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Normally Quicken tracks all your purchases and sales, so it remembers the cost basis for each tax lot. To change the cost basis for a lot, you would go back the the Bought entry for that lot and correct the data there. You might also need to go to any partial Sold transactions and make the tax lots sold match your broker's data.
    QWin Premier subscription
  • Tom:

    I'll check with Schwab support and see if they can help straighten out this out.

    Thanks for all your help and I'll let you know when/if I've found a solution.

    Chuck
  • Eric Pilhofer
    Eric Pilhofer Member ✭✭
    To the original question, I understand where you are coming from, my Prudential does the same. You can always trick the system and just "Add Shares" and keep your cost basis the same. If you also want to track dividends you can create a dividend account in the Hidden Accounts section. (which does not count towards your net worth)
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    @Eric Pilhofer
    The original poster acknowledged the correctness of the Quicken calculation and the difference from Fidelity. 
    so I will look at both the Quicken and Fidelity calculations, realizing they are two different (and correct) calculations.
    To "trick the system" of Quicken is rarely a good idea in my experience.   
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