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Unrealized loss dilemma - Quicken & brokerage disagree

Rocket J Squirrel

I'm trying to harvest tax losses. I have a mutual fund CPXAX (Cohen & Steers Preferred Securities & Income) which shows an unrealized loss of $6,582 in Quicken. But Morgan Stanley shows a loss of only $3,523, a significant difference and disappointing in my hunt for losses.

Going back through the history (via some old QWin data files), I am reminded that C class shares of CPXCX converted to A class shares of CPXAX on 8/8/19. Due to several account changes over time (parent → estate → me), that history is lost in current QWin. I don't remember where the relevant data went, but I guess that when the account changed ownership, MS must have updated the cost basis but that didn't reflect in QWin.

If I sell, I guess I will have to accept Morgan Stanley's loss amount, because that's what they'll report to the IRS. But how on earth can I bring QWin into agreement with MS so I get correct reporting and Tax Planner data?

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Jim_Harman

Was this a single purchase of CPXCX, or were there multiple purchases and/or reinvested dividends? Do you have all the original purchase details?

Also if these shares were inherited, the cost basis should have been reset as of the date of death. Perhaps that accounts for the discrepancy. If not, I think your only recourse would be to compare your records to MS and see where the discrepancy arises.

Rocket J Squirrel

So after playing with this, I can make the numbers agree by adding a Return of Capital for the difference to adjust the basis, followed by a Withdrawal to get rid of those dollars.

Is this the recommended path to bring the bases into agreement? It doesn't matter how the returned capital is allocated across lots because I'm going to sell all of them. Right?

Rocket J Squirrel

@Jim_Harman sorry, you and I were typing at the same time.

I don't have all the records because at some point in time I decided statements and data from long-closed accounts could be discarded. I guess that was wrong because the securities in the closed accounts just moved to other accounts.

I agree there must have been a basis step-up that I missed entering at the time. So do you think the RtrnCap method I mentioned above is adequate given I plan to sell the entire holding?

Jim_Harman

How did you record the inheritance? Normally the entire holding would move into your file as one Added, with the cost basis set to the market value on the DOD. If it was a trust that distributed the shares to you, the tax treatment would be different.

If you can get the cost basis detail from MS and it makes sense, you might just enter those transactions to correct your Quicken data.

Rocket J Squirrel

In my current account, I have 25 Shares Addeds all dated 8/8/19, the date of the class conversion. The Addeds all have different Dates Acquired and Total Costs.

I found the paper statement for that date(!), but it lacks detail, lumping all the lots together into Purchases and Reinvestments and only showing total costs for those. I imagine that the basis step-up caused all the lots to acquire the same basis so they could subsequently be considered one lot. This means my Addeds are all wrong in terms of adjusted cost basis.

Footnotes (which I'm sure I failed to notice at the time) state

The tax lot information was updated as a result of an internal adjustment and/or information provided by you or a third party.
The cost basis was adjusted due to either a return of capital payment and/or a reclassification of income. A return of capital reduces your basis in the security.

The and/ors confuse me. Also confusingly, the same footnotes appear in earlier statements as well. I really don't care to do the work necessary to correct the 25 lots when I can just correct the total basis and get rid of this increasingly annoying holding.

Thanks for responding.

Jim_Harman

If you want, you may be able to get more cost basis detail online or by contacting MS

q_lurker

My choice to update the basis would be one Remove Shares and one (I think) Add shares. I suppose the RtrnCap would also work.

My thinking on the one Add Shares is that they are all long term, you are selling all at once, and if they are a result of the stepped up basis, they should all be the August, 2019 date.

Rocket J Squirrel

Another good idea, @q_lurker . I'll play with that one as well. Thanks.

Fortunately, I'm no longer reinvesting dividends in that fund so they can't slip in a few shares while I'm not looking.

q_lurker

If at all interested, you might look at how the two methods compare in an Investment Performance Report, Average Annual Return calculation.

You’re right, subsequent reinvestments would have made the Add Shares more problematic.

Rocket J Squirrel

@q_lurker

If at all interested, you might look at how the two methods compare in an Investment Performance Report, Average Annual Return calculation.

Interesting indeed. The Remove/Add method results in an inaccurate report. The removed shares are not subtracted but the added shares are added, resulting in incorrect numbers. Are you familiar with this oddity? Seems like a bug.

q_lurker

??? Looks to me like the Removed was considered - as a Return - with the Add considered as an investment. The two counteract each other so there is no effect on the calculation. That is correct.

Does the RtrnCap yield the same AAR%?

Rocket J Squirrel

Sorry, I still don't get it. Removing shares is counted as a Return? That's new to me. I don't see how the 2 transactions counteract. I see cash dividends counting as Returns, which makes sense.

All the bottom line numbers, including the AAR%, are different between the 2 versions of the report. Remove/Add shows 0.25% and RtrnCap shows 0.83%.

I almost never run investment reports, gleaning my info from the portfolio views, so maybe I just don't have enough experience looking at these reports.

q_lurker

Removing the shares is taking those assets out of the universe of assets considered for the calculation. That makes it a return on the overall begin h market value. The value removed is the market closing price on date of removal times number of shares. The other consequence of the removal is that the ending market value is decreased.

The addition of shares is just the opposite using the same valuation calculation. When those two occur on the same date, they have equal and opposite effects on the computation

Whether a dividend counts as a return in this calculation depends on the scope of the defined universe for the calculation. If that universe includes both the cash and the security paying the dividend, the dividend is not a return. It is simply changing the form from security value to cash value.