Add transaction with negative cost

Rick Gumpertz
Rick Gumpertz Member ✭✭✭
edited October 2018 in Investing (Windows)
Why can't I ADD a stock to a brokerage account with a negative Cost Basis?  Such things can happen due to Return of Capital payments by the company.

(ADD transactions are necessary for transferring stocks with a negative basis between accounts.)

Also, why can the back-dated BUY transaction used by Quicken for a stock spin-off have a negative price?  Again, if the original stock had a negative basis for me, then the implied purchase price of the spun-off stock should also be negative.

The best work-around I have found is to use a $0.00 cost basis followed by a RtrnCap(X) for the actual basis.  Unfortunately, as described in https://getsatisfaction.com/quickencommunity/topics/qw2016-problems-with-return-of-capital , this can result in mis-allocation of the bases if I have more than one lot of the stock.  Sigh.

Comments

  • J_Mike
    J_Mike SuperUser ✭✭✭✭✭
    edited October 2018
    IIRC, from a tax standpoint, the cost basis for a holding can not go below zero,
    Upon reaching zero cost basis, further distributions (such as RtnCap) are reported/treated as ordinary dividends.
    Thus, if you are displaying negative cost basis, you need to revise the transactions to reflect this.

    Bottom line is that I do not see a problem with how Quicken is handling cost basis; rather the problem is with how you are attempting to record the info.

    Suggest you confer with you tax advisor fir further info on this issue.
    QWin & QMac (Deluxe) Subscription
    Quicken user since 1991

  • Rick Gumpertz
    Rick Gumpertz Member ✭✭✭
    edited October 2018
    Thak you!  It appears, however, that you are mostly right: the USA (and, I believe, Canada) treat the excess ROC as an immediate Capital Gain, not a Dividend:

    Once the adjusted cost basis of your stock has been reduced to zero, any
    further nondividend distribution is a taxable capital gain that you
    report on
    Form 8949.pdf, Sales and Other Dispositions of Capital Assets, and Form 1040, Schedule D.pdf, Capital Gains and Losses.

    The solution I guess, is to split the ROC into two transactions: RtrnCap(X) and MiscInc(x) with Category = _RlzdGain
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited October 2018

    Thak you!  It appears, however, that you are mostly right: the USA (and, I believe, Canada) treat the excess ROC as an immediate Capital Gain, not a Dividend:

    Once the adjusted cost basis of your stock has been reduced to zero, any
    further nondividend distribution is a taxable capital gain that you
    report on
    Form 8949.pdf, Sales and Other Dispositions of Capital Assets, and Form 1040, Schedule D.pdf, Capital Gains and Losses.

    The solution I guess, is to split the ROC into two transactions: RtrnCap(X) and MiscInc(x) with Category = _RlzdGain

    I would likely choose to split it as RtrnCap and either CGLong or CGShort as might be applicable.  Using the _RlzdGain category strikes me as likely to confuse either me or the program.  Using either CG... action is going to get the number to the right (a known) tax line projection.  Not sure what the unattributed _RlzdGain would do.    
  • Rick Gumpertz
    Rick Gumpertz Member ✭✭✭
    edited October 2018

    Thak you!  It appears, however, that you are mostly right: the USA (and, I believe, Canada) treat the excess ROC as an immediate Capital Gain, not a Dividend:

    Once the adjusted cost basis of your stock has been reduced to zero, any
    further nondividend distribution is a taxable capital gain that you
    report on
    Form 8949.pdf, Sales and Other Dispositions of Capital Assets, and Form 1040, Schedule D.pdf, Capital Gains and Losses.

    The solution I guess, is to split the ROC into two transactions: RtrnCap(X) and MiscInc(x) with Category = _RlzdGain

    I assume CGLong and CGShort are categories that you have defined yourself.  Makes sense to me.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    edited October 2018

    Thak you!  It appears, however, that you are mostly right: the USA (and, I believe, Canada) treat the excess ROC as an immediate Capital Gain, not a Dividend:

    Once the adjusted cost basis of your stock has been reduced to zero, any
    further nondividend distribution is a taxable capital gain that you
    report on
    Form 8949.pdf, Sales and Other Dispositions of Capital Assets, and Form 1040, Schedule D.pdf, Capital Gains and Losses.

    The solution I guess, is to split the ROC into two transactions: RtrnCap(X) and MiscInc(x) with Category = _RlzdGain

    No.  Those are "actions" like a Div or RtrnCap action. The transaction will then get a _LTCapGnDst or _STCapGnDst category assigned to it in the same fashion that a _DivInc category gets assigned to a transaction with a Div action entry. 

    These are nothing I have defined.  They are inherent within Quicken when using investments.   
  • Rick Gumpertz
    Rick Gumpertz Member ✭✭✭
    edited October 2018

    Thak you!  It appears, however, that you are mostly right: the USA (and, I believe, Canada) treat the excess ROC as an immediate Capital Gain, not a Dividend:

    Once the adjusted cost basis of your stock has been reduced to zero, any
    further nondividend distribution is a taxable capital gain that you
    report on
    Form 8949.pdf, Sales and Other Dispositions of Capital Assets, and Form 1040, Schedule D.pdf, Capital Gains and Losses.

    The solution I guess, is to split the ROC into two transactions: RtrnCap(X) and MiscInc(x) with Category = _RlzdGain

    The categories _LTCapGnDst and _STCapGnDst are different from CGLong and CGShort and wrong for this purtpose!  Capital Gains Distributions from a mutual fund are treated differently by the IRS than ordinary capital gains.  Similarly for many purposes, but differently.

    You should probably define new categories, as I thought you were doing.

    If Quicken were doing this all automatically, as I proposed, then I would expect it to treat the gains as it does for Sold(X) transactions: it would distinguish the term of the gains the same way that it does for sales, all under the "magic" built-in category _RlzdGain.  See the various Capital Gains reports.
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