Mutual Fund Cost basis adjustments

tevin

non dividend distributions reported on form 1099-Div force the need to adjust the cost basis of holdings. Non dividend payments are returns of capital and therefore need to be recorded as reductions to the cost bases. I have not found a way to record these payments accurately (a cost basis adjustment). Additionally, the disposition of the distribution isn't at the time of the payment but rather it is disclosed when the 1099-DIV is issued. The modified cost basis is carried until the final disposition of the asset. This situation results in all of the quicken reports being inaccurate i.e. Capital Gains report, Investment Portfolio, etc.
Is there a way to properly affect those payments or adjust the cost basis within Quicken? As it stands now i need to create a separate spreadsheet to record the year over year adjustments to each holdings cost basis.

Tom Young

"I have not found a way to record these payments accurately (a cost basis adjustment)."

What I do is to make two entries "as of" 12/31/XXXX.  The first entry is a reduction of dividend income in the amount of the return of capital, and the second entry records the return of capital.  That results in no change in cash in the Account and gets the dividend income for the year XXXX correctly stated.  Quicken distributes the return of capital among the various lots of the security properly.

Tom Young

"I have not found a way to record these payments accurately (a cost basis adjustment)."

What I do is to make two entries "as of" 12/31/XXXX.  The first entry is a reduction of dividend income in the amount of the return of capital, and the second entry records the return of capital.  That results in no change in cash in the Account and gets the dividend income for the year XXXX correctly stated.  Quicken distributes the return of capital among the various lots of the security properly.

tevin

looks like that will work ... thanks for the suggestion

q_lurker

I do the same as Tom for almost all circumstances -- a year-end adjustment.

I will point out that if the "agency" (brokerage, MPL, whomever) is keeping track in more detail (more frequently), differences could still develop.  For example, if the payouts are quarterly and the RtrnCap (non-dividend) portions are known quarterly, AND you have changes in the owned shares through the year, differences could develop. 

The year-end adjustment gets applied per share held at that time to each lot held at that time.  If you applied the adjustment with each distribution you could get different results. The differences would seem to depend on how different the lots sizes were across that time span. 

I offer that note simply as a caution if you continue to see differences.  For me, the year end adjustment works fines and all the reports you mentioned are sufficiently accurate for my needs.      

tevin

Thanks for the comment.
My situation is a little different in that the Brokerage firm deals with the Fund in aggerate. The Fund Management Co itself keeps the detail records account by account. The saving grace is that they provide an annual breakdown of the RtrnCap fund by fund, account by account. What that means is that when the 1099-DIV is issued each year they supply a detailed allocation of all of the RtrnCap position by position. The net effect is that each year I know exactly what the reportable adjusted cost bases is so I can plan my potential Cap Gain (unrealized gain/loss) of each position.
Its defiantly not like the old days when you could use a direct lot sale. With them every this is avg. cost.

My issue was recording it properly in Quicken

q_lurker

If you have these funds set up in Quicken as using mutual funds using Average Cost for cost basis, be a bit cautious.  There have been issues arise when such funds get moved between accounts, class conversions, and some similar odd transactions where cost basis does not seem to get handled properly.  For the rudimentary every day transactions, data seems to get handled correctly but it is still worth keeping an eye on it.  Average Cost may not be a well used and tested as it should be.  

tevin

Got it ... Thanks