QWin: When adding Dividend Reinvestment shares, it adds that to the cost basis. Is there a way to no

Unknown
Unknown Member
edited January 2019 in Investing (Windows)

I am using the Canadian version. The cost basis should not include dividend reinvestment. It makes it seem like you bought more when you didn't.

Comments

  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    edited January 2019

    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    Q user since February, 1990. DOS Version 4
    Now running Quicken Windows Subscription, Business & Personal
    Retired "Certified Information Systems Auditor" & Bank Audit VP

  • volvogirl
    volvogirl SuperUser ✭✭✭✭✭
    edited December 2016


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    If these are reinvested dividends then that is proper. A reinvested dividend is really 2 separate transactions. You get the dividend THEN you buy more stock. It's the same as if they sent you a check and then you bought more. So you do add it to the cost basis of the stock or fund.

    I'm staying on Quicken 2013 Premier for Windows.

  • Unknown
    Unknown Member
    edited April 2017


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    This makes sense - except ... my Fidelity reports show stock dividends as zero cost basis... That makes things confusing!
  • mindyflauto
    mindyflauto Member ✭✭
    edited August 2018


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    I am interested in this subject as well. To the supervisor, your explanation doesn't quite make sense to me. When the 50 shares were sold, was the profit due to an increase in the price of the shares (from $10 to $20 a share). If so, then I still don't see the explanation of why the dividends add to the cost basis. 
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    edited January 2019


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    Perhaps the example is unclear. Say you originally bought 100 shares at 7.00 then over the years received $500 in dividends which were reinvested at an average price of 10.00, buying an additional 50 shares. Your basis is now 700 + 500 = 1200.


    If you sell the entire holding at 20.00 per share, you get 150 x 20 or $3000. Your gain is $1800, not $2300.
    QWin Premier subscription
  • mindyflauto
    mindyflauto Member ✭✭
    edited August 2018


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    ok, i get it now thanks!
  • Unknown
    Unknown Member
    edited December 2018


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    I have a similar issue.  Reinvested dividends should not be included in retirement accounts cost basis as it minimizes the gain/loss.  In a taxable account, it should be included in the cost basis as you declare this as income.
    My concern with the current methodology for retirement accounts as it does not reflect the true taxable impact when you sell these funds.
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    edited January 2019


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    Actually in a tax deferred retirement account like an IRA, you are taxed on the full value of the distribution.


    In a Roth account there is no tax on distributions if you are over 59 1/2.


    The cost basis has no impact on retirement account distributions except for Roth distributions taken early.
    QWin Premier subscription
  • redgar
    redgar Member ✭✭
    edited December 2018


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    Interesting as I am noticing a difference in what Fidelity shows is my cost basis vs what Quicken shows.  Quicken is showing my reinvested dividends as cost basis (put in as buy) but Fidelity does not consider them additional cost basis and only shows original contribution as cost.  Sadly this makes it look in the red in Quicken but in the Green on Fidelity site.  

    One of these is misleading
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    edited January 2019
    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    QWin Premier subscription
  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    Fidelity is inconsistent in the matter of reinvested dividends adding to the Cost Basis.

    They show it as adding to basis in a Taxable account, but not in a non-taxable account.

    Also, while cost basis isn't important for TAX reasons in a non-taxable account ... it IS important for investment performance calculations. 

    Q user since February, 1990. DOS Version 4
    Now running Quicken Windows Subscription, Business & Personal
    Retired "Certified Information Systems Auditor" & Bank Audit VP

  • redgar
    redgar Member ✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    Tim even when I look at the average return it is still considering those additions as cost those not showing same number as Fidelity Statement.

    NotACPA are you saying Fidelity site is consistent be that I agree on but the in Quicken the non taxable/Roth still showing those Dividends/Gains with the cost so my performance is off in Quicken.  Not a big deal for the balance but if I look at the investment portfolio what is a winner look like a loser.
  • mshiggins
    mshiggins SuperUser ✭✭✭✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    Fidelity is wrong. Cost basis is cost basis, whether or not the account is taxable.

    Quicken user since Q1999. Currently using QW2017.
    Questions? Check out the Quicken Windows FAQ list

  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    NotACPA are you saying Fidelity site is consistent
    NO,  I said that Fidelity is INconsistent.  Re-read my prior message.

    Q user since February, 1990. DOS Version 4
    Now running Quicken Windows Subscription, Business & Personal
    Retired "Certified Information Systems Auditor" & Bank Audit VP

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    @Edgar:
    Not a big deal for the balance but if I look at the investment portfolio what is a winner look like a loser.
    By what measure are you assigning winner/loser status?  Gain/loss associated with capital gains is only part of the story.  You can be positive in overall investment performance and still have a negative unrealized gain/ loss component -- if dividends and distributions exceed the drop in value.  

    My spin:  Every 'reinvestment' is a choice by the investor to use the income (dividend, etc.) to purchase more shares.  Sometimes those bought shares increase in value (gains); sometimes they decrease in value (losses).  That is pretty much what Quicken is doing without differentiation as to retirement account or not.

    Quicken's overall investment calculation (Average Annual Return, aka IRR) will consider both the income distributions and the change in value.  

  • redgar
    redgar Member ✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    I put in 13k.  6500 on 3/23/17 and 6500 on 5/8/17.  Today it is worth 14K. Winner (up overall).

    Over the years I have 5K in these distributions that are being reinvested.
    Because Quicken shows I have added 5K in cost, It shows the fund as an overall loss 4K.  Loser

    So yes I reinvested what is earned but it doe snot seem to recognize that I earned the 5K to reinvest in the first place.

    IRR% YTD is N/A likely because there was a December distribution reinvested
    IRR% 1Yr is down 11.8%
    IRR% 3Yr is up 5.6%
  • volvogirl
    volvogirl SuperUser ✭✭✭✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    Sounds like a loss to me.  It's just like if they had sent you the 5k dividends and then you wrote a check to buy more shares.  So where's the 5k showing up?  If you took the 5k in dividends and cashed them and your account value is 14,000 then you would have a gain plus the 5,000 would be in your checking account

    You actually invested 6,500+6,500+5,000 = 18,000
    What about the 5K?  You've lost it. 

    Look at the actual number of shares and the share price. 
    You paid 13,000 for how many shares?
    How many shares do you have now with the re investments?    

    I'm staying on Quicken 2013 Premier for Windows.

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    I put in 13k.  6500 on 3/23/17 and 6500 on 5/8/17.  Today it is worth 14K. Winner (up overall).
    Over the years I have 5K in these distributions that are being reinvested.
    Because Quicken shows I have added 5K in cost, It shows the fund as an overall loss 4K.  Loser
    No.  Quicken is showing that you have Capital Losses of $4K.  One should not interpret that as Quicken saying there is an overall loss of $4K. 
     
    So yes I reinvested what is earned but it does not seem to recognize that I earned the 5K to reinvest in the first place.
    Information on capital gains is not the place for Quicken to 'recognize' the other $5K of income generated.

    IRR% YTD is N/A likely because there was a December distribution reinvested
    IRR% 1Yr is down 11.8%
    IRR% 3Yr is up 5.6%
    The YTD is NA for some other reason (today being Jan 1?).  (My funds show 0% today, with or without December distributions.)

    Try an investment performance report from 1/1/17 or 3/23/17 to date.  That should give you the best measure of complete performance including the effects of the reinvestments and the market value change.  Note that the reinvestment transactions will not be listed in the report; their effect will be in the ending value increased by their presence in your portfolio.  At current $14K vs original $13K over 21 months, Id expect something like a 4% Avg Ann Return.  

    But that is still a combination of $4K in capital losses and $5K in 'income'.  Tax-wise, those can be very important distinctions.
  • redgar
    redgar Member ✭✭
    edited January 2019

    Edgar,

    Cost basis and the "Gain/Loss" columns in the account Holdings view are really only important in a taxable account, because they are used in the calculation of the capital gain or loss when you sell.

    In a taxable account, you pay tax on the dividends when you receive them whether or not they are reinvested. When you reinvest the dividends, you are using them to buy more shares and thus they add to your cost basis. The increased cost basis reduces the amount of taxes you pay when you sell.

    This calculation is different from the performance or total return of your investment, which is probably what Fidelity is showing. To see your investment's performance in Quicken, I suggest you look at the "Av. Annual Return" columns in the Investing > Portfolio views or the Investment Performance report. Note that this data is only meaningful for investments that you have held for a year or more.


    Don't see Investment performance reports. Not sure they are available in the Mac version.

    And to complicate my life even more, today my IRR% YTD is a whopping 901.7%
  • redgar
    redgar Member ✭✭
    edited January 2019
    Thanks to you all for the help.  

  • Rich_M
    Rich_M Member ✭✭✭✭
    edited January 2019


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    Edgar Perez: I have an IRA at Fidelity also, I never looked at this before, but you're absolutely right, all reinvested dividends show zero cost basis.  However, any shares that I purchased with a trade have a cost basis.

    By doing it this way, Fidelity is overstating any gain and understating any loss I may have from my investments.

    Perhaps, the rationale is that the reinvested dividends were of no cost to me, therefore, the market value of those lots represent pure profit to me.
    Quicken 2017 Premier - Windows 10 Pro
  • NotACPA
    NotACPA SuperUser ✭✭✭✭✭
    edited January 2019


    The money received that used to purchase those shares is MOST CERTAINLY part of the cost basis for the security.  In fact, it's the entire cost basis for that particular lot.


    Consider if it wasn't.  Say you received $500 and purchased 50 shares of the security ($10/sh).  At some time down the road, you sell those 50 shares for $1000 ($20/sh).  Would you want that entire $1000 to be Capital Gains?  If the dividend isn't the cost basis, that's what you'd get.


    Properly, that $1000 sale would be a $500 return of your capital and a $500 Cap Gain.


    So, NO, there's no way to do what you want.  AND, you did buy more ... the shares purchased with the DivReinv.

    I have a stock that I hold in both a taxable account and an IRA account ... which is how I discovered Fido's inconsistency.

    I'm a customer of Fido's "Private Client Group", and I've complained about this for years ... without any resolution.

    Q user since February, 1990. DOS Version 4
    Now running Quicken Windows Subscription, Business & Personal
    Retired "Certified Information Systems Auditor" & Bank Audit VP

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