What's the best method for recording a muni bond exchange split into smaller bonds?

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Hi. In a non-qualified account I have a Muni which was exchanged into 2 smaller quantity bonds, one all details the same, different CUSIP; one details the same except now a PRE date (instead of a call date). This is a true exchange not a sell/buy situation.

In a post a few years back, a similar question, except the bond details were identical except for the CUSIP, add/remove shares was suggested (https://community.quicken.com/discussion/7317829/exhanging-bond-issues)

Is that still the best method, or is there another approach to handling this?

If that is the only way to do this, add/shares generally is used for stocks. Do I treat the number of shares field as the number of bonds field? Is there any behind the scenes difference that Quicken attributes using add shares vs buy bonds, in terms of "marking" the security as a bond vs stock?

Thanks.
Janet

Answers

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    If this truly is not a Sell/Buy situation, the Remove/Add is the best option.

    Since these are different CUSIPs, I suggest you manually create the securities as Muni Bonds before manually creating the Adds.

    Within Quicken the Bonds Bought function operates that bought '$1000' bonds and Quicken treats those as $100 shares.  If you buy 25 bonds (at something close to $1000 each or with a face value of $1000), then Quicken records this as buying 250 'shares' using the $100 base value.  Subsequent valuations of the bonds use that $100 baseline.

    So the Add Shares operation should parallel that mode.  Enter 10x the number of $1000 bonds that you received in the exchange as the number of shares added. 

    With your next download, the brokerage should identify the new bonds as new securities and you should then match those new bonds to the ones you just created.  (If by chance you have already been through that download process, you may not need to create the securities/bonds in advance).  

    Is there any behind the scenes difference that Quicken attributes using add shares vs buy bonds, in terms of "marking" the security as a bond vs stock?
    Not really, but that is why I'd try to manually create the securities first as a bond.  Once created as a bond, you should be able to identify as desired things like interest rates, maturity dates, call dates, taxability, etc.  

  • jrm
    jrm Member ✭✭
    @q_lurker I track my investments manually, as in the past I've had trouble using automated downloads. I appreciate the reply, and if you have further guidance, would appreciate that, too.

    Thanks.
    Jaet

    > Within Quicken the Bonds Bought function operates that bought '$1000' bonds and Quicken treats those as $100 shares. If you buy 25 bonds (at something close to $1000 each or with a face value of $1000), then Quicken records this as buying 250 'shares' using the $100 base value. Subsequent valuations of the bonds use that $100 baseline.
    >
    Interesting way of looking at this. Thanks for putting it into "share" terminology to explain Quicken's viewpoint.

    > So the Add Shares operation should parallel that mode. Enter 10x the number of $1000 bonds that you received in the exchange as the number of shares added.
    >
    I think I'm missing something here. I know to use the original buy date as the date acquired, and I assume I ignore the original accrued interest as Quicken enters that as a separate cash transaction. I assume I would also add in the original cost basis in. But, something doesn't look right to me for basis, or I'm not following.

    See my pics

    I had $10,000 bond value, so original transaction has 10 bonds, which as use note, in holdings show up as 100 shares. So, in the add, are you saying I should have this as 50 shares for the CUSIP? But, that still doesn't seem to have my basis right.

    I originally thought I'd leave it as the old CUSIP, except one has a call and one a PRE and I see in the August statements they are at different prices. (Also, when adding a bond Security it only gives a call date option, not a PRE date option. Should I just add the PRE date in?

    Thanks for all your help!
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    I can't comment on the PRE date option, unless that is effectively a Call option (where the borrower/issuer has the option to pay off the debt before the maturity date).  

    Further, for this situation, I don't specifically know how the original basis gets divided to the two new bonds.  I'd say trust your brokerage to report that info to you (and check that it makes sense). 

    So you originally bought 1/24/20 10 bonds (100 shares) for a basis of $11,300.60.
    Now you are going to remove those 100 shares and add what? 
    5 'shares' of the '576000ZR7' bond with a basis of 282.37, and
    ? shares of a different bond with a basis of (11,300.60 - 282.37) = 11,018.23.
    Meaning I would expect the basis of what was removed to match the basis of what was added.  The before and after current values should be close but may not be an exact match on the total. 

    (Generally I would be expecting those 5 shares of '576000ZR7' to be paying off $500 at some point in the future. True?  OR is it 50 shares that eventually redeems for $5000.)    
  • jrm
    jrm Member ✭✭
    @q_lurker

    Thanks for the additional follow-up. After reading this a couple times, and sitting down with a new test data file, I realized the error I made, which is I only added 5 shares (the number of new bonds from the exchange) instead of 50 (the number of shares) and then screwed up the new basis as well.

    The brokerage statement doesn't indicate any information re basis for the new shares, but in a conversation I had when the transaction first occurred and I was asking for an explanation, I was told the basis would remain the same.

    So, if I did this right this time around, here's what it looks like....
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