Why does Quicken increase the cost basis for reinvest dividends, etc.?

Julian Coats
Julian Coats Member ✭✭
edited January 13 in Investing (Windows)
I just noticed that when I downloaded transactions from Schwab that the cost basis of mutual funds is increased for reinvested distributions. The cost basis should not change.

Answers

  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    edited December 2021
    Hi @Julian Coats

    Think of it this way - if you were to take the dividend in cash, rather than reinvest it, and then the next day you decide to purchase additional shares of that same stock, mutual fund, etc. and you use the cash you received from the dividend.  Would your basis in the investment increase by this new investment?  Yes it would.  Same thing happens with a dividend reinvestment - your basis increases by the amount of the dividend (or in some cases by the amount of the dividend less certain fees).

    Let me know if you have any followups.

    Frankx

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  • Chris_QPW
    Chris_QPW Member ✭✭✭✭
    Note the Cost Basis is for tax purposes, and you in fact want it to go up.  The higher the Cost Basis the lower your income is as far as the IRS is concerned, and as such the lower the tax.

    Any number that includes the Cost Basis is for tax purposes, for "total returns" you need to look at different numbers like Average Annual Return.
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  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    edited December 2021
    Concurring with the above comments.
    Any Reinv transactions is simply the receipt of a Div, Cap Gain, etc immediately followed by a purchase of the security for the same amount.
    And ANY purchase increases your Cost Basis.  It doesn't matter where the funds come from.
    BTW, IF, perchance, your firm is Fidelity Investments ... they're inconsistent in how they report the impact of a reinvestment upon Cost Basis.
    I own shares of my former employer in both my taxable account and my Retirement account at Fidelity.  When I have dividends reinvested on the shares in the taxable account, the cost basis increases.  When I reinvest the dividends in my IRA account, the cost basis of those new shares is reported as $0.
    Fidelity says that this is because the cost basis of the shares isn't important, for tax purposes, in a Retirement account.
    When I say "Yes, but the cost basis IS IMPORTANT for investment performance measurement", they don't have a reply ... but they don't correct the matter either.
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