Resetting Cost Basis of Remaining Shares

gwwilliams3
gwwilliams3 Member ✭✭
edited July 13 in Investing (Windows)
Is there any way to tell Quicken what the correct cost basis of remaing mutual fund shares is without having to recreate or correct the entire transaction history for that security (which in many cases is just not practical, e.g for securites you have owned and traded for over 20 years). Without that ability the cost basis, captial gains, and tax features of Quicken can quickly become useless (unless you have accurately preserved the entire tax lot history of all your investment transactions since the beginning of time -- which is almost impossible). If Quicken does not have the ability to just "reset" the cost basis of remaing shares (e.g. to match brokerage records) is there some reason that Intuit can't, or hasn't added this ability? Please advise.

Best Answers

  • gwwilliams3
    gwwilliams3 Member ✭✭
    Accepted Answer
    Yeah, I though about trying to "fake it" that way - but the problem with that (I think) is that you will mess up all of the historical return calculations (because the timing and magintude of actual security purchases and sales would be then be lost as well). To me it is more important that Quicken return calcs be accurate, than it is that cost basis be correct for the purposes of estimating tax imapacts (as I can rely on data from my brokerage for the later). Ideally I would like to be able to retain accurate purchase and sales history in Quicken, and have accurate cost basis info for remaing share in Quicken too (so that I could use some of Quicken's tax related features). But it looks to me like there is no way to do "both" in Quicken , unless the tax lot detail of all prior sales has been accurately captured in Quicken (which it hasn't been over the past 20 years, and there is really no practical way to go back and recreate it transaction by transaction). So unless Quicken keeps seperate track of (and allow you to modify) the cost basis of remaining shares seperately from the buy and sell data that drives the return calcs then I think "both" just can't be done in Quicken (unless you acurately capture the tax lot details of all prior sales in Quicken from "Day 1")? If that is the case, then I will preserve the intergrity of the actual purchase and sales data for the benefit of the return calcs, and just have to accept that the actual cost basis, gain loss info, and tax estimates that Quicken provides are not realiable. Thanks for feedback.
  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    Accepted Answer
    When you sell MF shares, the brokerage company will almost always use FIFO to determine which shares to sell ... UNLESS you give written instructions at the time of the sale to use different lot(s).
    SO, did you ever sell shares and NOT use FIFO?  Maybe you used Max Gain or Min Gain instead.
    How many sell transactions do you have that would need to be edited?  And changing a particular Sale to FIFO is pretty simple and quick. 
    Also, if you have your records back to the beginning of time, you can edit the oldest transactions falling in that 1st year and see if that brings things into alignment with the brokerage reports.
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    There's two broad methods of valuing mutual fund shares, that being "lot by lot" and "average cost."  Each "broad" method has variations within them.
    If you simply want the number of shares and the cost basis of those shares to match the financial institution's figures then one "Remove" of all the shares and one "Add" of all the shares - at a suitable average cost - is the easiest approach.  That's the closest thing to some sort of a one-button-push "reset" function, though you have to calculate the appropriate average cost to use.
  • gwwilliams3
    gwwilliams3 Member ✭✭
    Accepted Answer
    Yeah, I though about trying to "fake it" that way - but the problem with that (I think) is that you will mess up all of the historical return calculations (because the timing and magintude of actual security purchases and sales would be then be lost as well). To me it is more important that Quicken return calcs be accurate, than it is that cost basis be correct for the purposes of estimating tax imapacts (as I can rely on data from my brokerage for the later). Ideally I would like to be able to retain accurate purchase and sales history in Quicken, and have accurate cost basis info for remaing share in Quicken too (so that I could use some of Quicken's tax related features). But it looks to me like there is no way to do "both" in Quicken , unless the tax lot detail of all prior sales has been accurately captured in Quicken (which it hasn't been over the past 20 years, and there is really no practical way to go back and recreate it transaction by transaction). So unless Quicken keeps seperate track of (and allow you to modify) the cost basis of remaining shares seperately from the buy and sell data that drives the return calcs then I think "both" just can't be done in Quicken (unless you acurately capture the tax lot details of all prior sales in Quicken from "Day 1")? If that is the case, then I will preserve the intergrity of the actual purchase and sales data for the benefit of the return calcs, and just have to accept that the actual cost basis, gain loss info, and tax estimates that Quicken provides are not realiable. Thanks for feedback.
  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    Accepted Answer
    When you sell MF shares, the brokerage company will almost always use FIFO to determine which shares to sell ... UNLESS you give written instructions at the time of the sale to use different lot(s).
    SO, did you ever sell shares and NOT use FIFO?  Maybe you used Max Gain or Min Gain instead.
    How many sell transactions do you have that would need to be edited?  And changing a particular Sale to FIFO is pretty simple and quick. 
    Also, if you have your records back to the beginning of time, you can edit the oldest transactions falling in that 1st year and see if that brings things into alignment with the brokerage reports.
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Mark1104
    Mark1104 Member ✭✭✭✭
    curious, if the brokerage firm has the accurate cost basis records, why is it important to have that in Quicken?  maybe a change in thinking gets to a better outcome?  Years ago, before the IRS required the brokerage firms to maintain these records for tax reporting purchases, I could see the reason to maintain the accuracy in Quicken, but now, why does once care? And I assume one would only care in a non-IRA account. 
  • gwwilliams3
    gwwilliams3 Member ✭✭
    Thanks to both of you for your suggestions. I have done specific lot sales in the past, and I think that Min Gain is actually the default instruction that I gave my broker (i.e. what they will do if I don't give specific lot instructions). But thinking a bit more about what you have both said, I think there might actaully be a way correct the tax lot details in Quicken FOR THE REMAINING SHARES ONLY without having to resort to average cost accounting, or messing up the return cals. Wherever the tax lot details in Quicken (which is wrong) doesn't match the tax lot detials from the broker (which are right), I suppose I could enter offestting (i.e. dummy) buy and sell transactions in Quicken ON THE DATE THOSE REMAINING SHARE WERE ACTUALLY ACQUIRED. This should correct the tax lot errors in Quicken without impacting the return calcs -- and the tax features of Quicken should then be accurate FROM THAT POINT FORWARD. This will of course create some "fake" gains & losses in the past, but I really don't care about that. And the task might not actually be all that daunting, since I will only need to do it for the shares I still own, and only in Taxable Accounts (since cost basis really doesn't matter in retirement accounts, and I therefore use average cost accounting for all of those anyway). As long as I identify (in the Quicken) the specific lots to be sold in all FUTURE sales (which I still need to confirm) then it might be worth the "one time" effort to bring the Quicken tax lot info "up to date" (for remaining sahre only, and in taxable accounts only). Thanks to both of you for your suggestions.
  • gwwilliams3
    gwwilliams3 Member ✭✭
    Mark -- you are right, it is not really necessary to have accurate cost basis info in Quicken, unless you want to use some of the tax related features (like estimating the capital gains impacts of sales, etc) -- which is why I haven't really worried about it much in the past (and I'm not really too worried about it now). I have been relying (for many years now) on my brokerage for accurate cost basis and capital gains info, and will no doubt continue to do so in the future for actual income tax purposes. I gave them all of the relevant historical info (which they did not have) when the "new reporting rules" went into effect (back in 2011, I think) and they of course have monitored everything since then (so they have accurate cost basis info on everything that still matters). And you are also right that the cost basis info is pretty much irrelevant for retirement accounts (I don't really even know why Quicken and the brokerages track cost basis in those accounts, but I guess it can be relevant for things like early withdrawals, the 5 year rule on Roth Conversions, etc -- none of which apply to me). If I can easilly make Quicken tax lots agree with the brokerage records I will do so, but if not it is no big deal (I will just keep doing what I have been doing for may years now -- using Quicken to monitor returns, but not for anything that is tax related).
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Seems to me you are WAY over-thinking this.  

    First of all, the errors in the current cost basis figures.  Why are they wrong?  Are they off by a little or a lot?  Is it in a few lots of many?  All lots?  I acknowledge the 20+ years of history being difficult to recreate and correct, but you also seem to be saying you need to that history to be correct while trying to bypass correcting the history.

    Second, you keep referring to "returns" and "return calcs".  Be more specific as Quicken offers several with varying degrees of sensitivity and accuracy.  I am partial to the Average Annual Return values (portfolio views and Investment Performance Report) as the most reliable and consistent presentation.  YMMV.

    With that in mind, if you today entered one Remove Shares and a balancing Add Shares with the corrected cost basis for the entire security holding (as @Tom Young initially suggested), that would have no effect on Average Annual Return calculations.  For that calculation, both transactions would be treated as Removed and Added based on today's closing for that security.  The cost basis is not a factor.

    In a similar fashion, you could Remove Shares and Add Shares of any one lot of the security that needed correction.  I am not prepared to comment on how the Remove/Add pairing might or moght not impact other return computations.

    RtrnCapX is another tool that will change the cost basis of the entire holding in that account.  If you reference the cash to the same account as the entry (the -X variation), the account cash balance will not be altered.  RtrnCapX can be either a positive or a negative value when entered through the "Enter transactions" button.  as this will change the basis in all lots of that holding, this may be a less desirable option (one I would likely not choose). 

    ... I suppose I could enter offestting (i.e. dummy) buy and sell transactions in Quicken ON THE DATE THOSE REMAINING SHARE WERE ACTUALLY ACQUIRED. This should correct the tax lot errors in Quicken without impacting the return calcs -- and the tax features of Quicken should then be accurate FROM THAT POINT FORWARD. 
    How will that not impact return calculations?  You sell a lot you truly bought at $100 and buy 'the same' lot for $150 just to change the basis for some unidentified reason.  Your $100 initial outlay is gone.  Was that correct or was that wrong?

    My bottom line -- in order to have the return calculations correct, you need to have the base transactions correct.  Anything else strikes me as a kludge making the results suspect.
        
  • Mark1104
    Mark1104 Member ✭✭✭✭
    @gwwilliams3 - I also just use Q to monitor returns..... but I think of it differently.... it's not about the cost basis, it's about the 'performance'. 

    Cost basis is only relevant to determine IRS capital gains requirements,

    With performance, that cost basis simply does not matter. 

    Example:  I bought a 100 shares of the same stock every year for the last 10 years on on July 1.  I sold 50 shares each year on Dec 31.  For tax purposes, I chose the 50 shares at random from various lots based on my Excel random number generator.  (I know, not tax efficient, but will prove my point). 

    The cost basis is important to determine how much I owe the IRS upon sale; My broker is keeping track of my unorthodox sales approach so I can correctly pay taxes on my gains to the IRS.  

    But if I want to know the performance of my investment, my unorthodox approach of selling various lots will have no bearing on the result.   It's about 'performance' and 'average annual return'.  I'll run the investment report called 'investment performance' to assess the return on my stock investment. which will be the same, regardless of which lots I sold on a given day. 

    Performance is about cash in and cash out of the investment, regardless of the cost basis of the investment, 
  • Mark1104
    Mark1104 Member ✭✭✭✭
    @gwwilliams3 - i think about this differently.  Maintaining cost basis is only relevant for determining capital gains taxes and my broker tracks that for me. 

    What I am interested in is 'performance" which is a function of cash in and cash out of an investment. Cost basis is irrelevant. 

    Example:  For the last 10 years I have purchased 100 shares of the same stock on July 1 and sold 50 shares each December 31.  On those sells, I have an unorthodox method of determining which lots to sell: I use my Excel random number generator to determine which 50 shares to sell as I don't care whether I am tax efficient or not.  My broker keeps track of my unorthodox approach and I pay the IRS the correct tax on my reported gains. 

    My 'performance' (see the Q report called 'investment performance') is EXACTLY the same, on a pre-tax basis, regardless of which lots I decide to sell because the cash I receive from the sales is EXACTLY the same, regardless of which lots I decide to sell.  THAT is what I care about.  How is my investment performing? 

    So I can pick any two dates and use the performance report to determine the relative performance of my various investments between those two dates. The cost basis of the investments will not affect the result.  this is what I critically use Quicken for...........
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