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Adjusting Cost Basis of Stock In MS Money RRS feed

  • Question

  • I have just been notified that one of my stocks has re-characterized the 2016 and 2017 dividends as "return of capital" and not taxable. I have to file amended tax returns for 2016 as I have overpaid taxes.  However, this also means that the cost basis of the stock has to be adjusted downward and incurring greater gain when selling. I am at LTBH'er and have numerous transactions going back many years....is there any way in MS Money to easily, globally adjust cost basis?
    Monday, February 5, 2018 4:50 PM

Answers

  • I think that you can simply change the 2006 and 2007 dividend transactions to return of capital transactions.  Money will adjust the cost basis accordingly.

    If, however, you have bought or sold shares of this investment in the interim, thing may be more complicated.  I am sure that someone with more investment experience will chime in here.


    Bill Becker

    Monday, February 5, 2018 5:33 PM
  • Note that each ROC would only affect the shares that you held at the ex-distribution (like ex-dividend) date. So if you were doing semi-annual purchases, and an ROC transaction overlapped one of those periods those periods, it could get confusing. So in other words, the ROC date would be the ex-d date rather than the pay date.

    It will be interesting to see what  you find.

    Back-editing the transactions sounds like a lot of work, so I think using the spreadsheet will be the deal.

    Tuesday, February 6, 2018 8:25 PM
    Moderator

All replies

  • I think that you can simply change the 2006 and 2007 dividend transactions to return of capital transactions.  Money will adjust the cost basis accordingly.

    If, however, you have bought or sold shares of this investment in the interim, thing may be more complicated.  I am sure that someone with more investment experience will chime in here.


    Bill Becker

    Monday, February 5, 2018 5:33 PM
  • Thanks... I saw the pick for return of capital in Money.... reinvested the 2016 and2017 dividends thru a DRIP... no or sell... I wonder does this affect shares back to the begining or transactions going forward. There is no real info on the net.. nothing in Money help. Anyone else?

    Monday, February 5, 2018 6:14 PM
  • A return of capital transaction normally does not affect your taxes until you sell the shares affected.  But since you already reported that money as dividend income on your 2016, you can amend the return with the corrected dividend amount.  This will reduce both your AGI and your taxable income.  Depending on the amount of money recharacterized, this could effect not only your tax liability but the amount you can claim for certain adjustments (such as IRA contributions) as well as your eligibility for certain credits (such as retirement contribution credit).

    The same applies to your 2017 return in the unlikely event you have already filed it.  If you have already filed, you should wait till you receive your refund or your payment has cleared before filing the amendment.

    The return of capital reduces your basis in all the shares you own on the day the transaction was declared.  At the time you choose to sell, if you sell all the shares affected by this transaction, you basis is simply the basis prior to the declaration minus the amount declared.  If you sell only a portion of the shares affected, you must apportion the reduction between the shares you sell and the ones you keep.  I have not seen any IRS guidance on this process but I imagine if you apportion each share an equal amount, the IRS would accept that.  If it makes a significant difference, you might try to apportion based on the cost of each share.  That would probably require a more complete explanation.

    My version of Money has no problem reducing the basis of all the shares as a whole.  I doubt if it can deal with the more complicated case.  You may need to work it out with a spreadsheet and then create some "administrative" entries in Money to adjust its balances appropriately.

    One thing that makes this easier is you can use averaging for mutual funds (but not for stocks).  If you choose to average, then just compute the new basis for all shares prior to the first declaration as original basis - first return.  Then use this new basis to compute the final basis after the second return.  Then when you sell, the basis of each share is simply final basis / number of shares regardless of whether you are selling old shares or new shares.

    Monday, February 5, 2018 8:39 PM
  • Hi... I've done two draft amended returns for 16 and I am holding off on 17, I still need 1099s. The immediate tax implications I have a solid handle on, it is the numerous transactions and cost basis for future sale that has me concerned..

    return of capital reduces your basis in all the shares you own on the day the transaction was declared.  At the time you choose to sell, if you sell all the shares affected by this transaction, you basis is simply the basis prior to the declaration minus the amount declared.  If you sell only a portion of the shares affected, you must apportion the reduction between the shares you sell and the ones you keep.  but I imagine if you apportion each share an equal amount, the IRS would accept that.  If it makes a significant difference, you might try to apportion based on the cost of each share.  That would probably require a more complete explanation.

    OK, I think this answers my question somewhat... the first return of capital lowers the cost basis for all transactions going back to the first purchase, and the second return of capital does it all over again. All historic shares are affected and reset.

    My MS Money cost basis was reduced by editing the affected dividends to "return of capital", thus immediately lowering the average share price and cost basis accordingly. However, this had no effect on the historical purchases. This works for capital gains on an average cost basis, which may not be the most tax efficient.   To get a specific share new cost basis, all past transactions must be put to an XLS and edited. Then re edit MS Money transactions. Why do you say averaging does not work for stocks? I would imagine most people would use this vs FIFO LIFO or specific shares....

    MANY THANKS FOR YOUR REPLY!!!

    Monday, February 5, 2018 9:07 PM
  • Thanks... I saw the pick for return of capital in Money.... reinvested the 2016 and2017 dividends thru a DRIP... no or sell... I wonder does this affect shares back to the begining or transactions going forward. There is no real info on the net.. nothing in Money help. Anyone else?

    It should apply to all shares in the account, not just the ones that you want.

    HOWEVER, I just did a test on a couple of stocks in MSM Sunset. I entered a return of capital in the amount of $1 times the number of shares I hold, for two different stocks. No basis change was reflected in the Capital Gains Estimator or the basis column of the Peformance By Investment Account report. So it's a bug that I did not know about.

    What I did not try is to create a return of capital, do a fake sell for a date later than the ROC, and generating a TXF file to see what gain it calculated for that. I am not predicting one way or the other, but if it matters to you, I will leave that as an exercise for you for now. With current basis tracking by brokers, I am giving up on having my MSM basis numbers being the primary basis info for most shares.

    So there may be other places where ROC is handled properly in Money. For example, I did not check the return calculations for the Portfolio.

    Monday, February 5, 2018 11:12 PM
    Moderator
  • In one of the IRS pubs they are pretty emphatic about not averaging for individual stocks.  You either chose which stocks to sell or default to FIFO.  If you choose, you have to inform your broker at the time you place the sell order.
    Monday, February 5, 2018 11:28 PM
  • I entered a return of capital ... No basis change was reflected in the Capital Gains Estimator or the basis column of the Peformance By Investment Account report. So it's a bug that I did not know about.

    When a return of a capital is entered, the only apparent action I can see is that MS Money reduces the overall total amount invested and calculates a new average cost per share. This recalculation is separate and there is no further action on the individual historical transactions making up the total current shares. A return of capital affecting the cost basis should be an action item in Portfolio Manager "Record a Special Activity" . Return of Capital should function like the way Money handles a split adjusting the individual transactions.

    Do brokers provide the cost basis for each historic lot? Also, I believe brokers only have to do this for transactions from 2011 on.

    Unless there is some way in Money to spit out the all the transactions which comprise the current shares, this will be a nightmare.

    Tuesday, February 6, 2018 4:49 PM
  • Re: "Unless there is some way in Money to spit out the all the transactions which comprise the current shares, this will be a nightmare."

    I might be able to help with generating a report like this via sunriise if you think it will help you sort this out. Let me know what you think the report should include (row, column ...)

    https://github.com/hleofxquotes/mnyjson/wiki



    Tuesday, February 6, 2018 6:18 PM
  • Do brokers provide the cost basis for each historic lot? Also, I believe brokers only have to do this for transactions from 2011 on.

    Many, if not all, brokers started collecting info in 2003 I think. They report this to you. For stocks, buys after 2012 are "covered" and the basis is reported to the IRS. You need to enter the amount they report, and in separate boxes indicate the corrections.

    Usually you can update the basis info to the broker for pre-2011 transactions, and they will report that back to you when you sell.

    Unless there is some way in Money to spit out the all the transactions which comprise the current shares, this will be a nightmare.

    If you want to see what Money thinks the lots and basis is, see the Capital Gains Estimator.

    If you want to experiment, I suggest that in a test file, you could generate a Sell of all of the shares you hold that you want the info on. Generate the TXF file, and get what Money thinks the lots are and what the basis and dates of each is. Let us know if the basis data is the same as what the CGE said.

    Using Money Plus Sunset,here is how you get the TXF file:
    configure in the TaxEstimator icon by clicking "Shortcuts..." near
    the top of your Money window.

    TaxEstimator->TaxTools->ExportToTaxSoftware

    Set the ReviewTaxesFor drop-down to Completed2017TaxYear. Continue.

    Select the items that you want Money to include in the TXF file.  For this, choose only long- and short-term capital gains.

    That TXF file is not up to current standards, because it does not break the sells into covered and uncovered entries so that TurboTax can use them. I wrote a program to make that change. I don't expect to use that this year, and will instead let the broker send info to TT, and I will supply the corrections manually.... of course I could revert to my old way if that does not work well for me. https://social.microsoft.com/Forums/en-US/85fbc12e-76db-4243-b4e6-0c24ddb5557d/exporting-2011-schedule-d-information-for-us-income-tax-to-turbotax-or-other-tax-software?forum=money is an old write-up that I did. The tfxfix.py link is probably not going to work. I could make it available if somebody was going to actually try working with it, but I think that is unlikely.

    The hleofxquotes2 offer sounds generous if that would be useful for you.



    Tuesday, February 6, 2018 6:54 PM
    Moderator
  • Thank You all for your substantive help in dealing with this issue. However, I think I have a handle on the problem thanks to you guys and my old night accounting classes which I should have taken more of.

    I made a report in Money of all transactions for this stock since day 1. Luckily, there were no sales, just purchases and DRIP purchases. From this I generated an XLS and computed share totals and confirmed that share total with my broker and MS Money records. (strange, Money's report does not total columns for you). I then added three new columns : original per transaction cost basis, per transaction cost basis after ROC 2016 and subesquent ROC for 2017.

    I totaled my share balance for 2016 and then divided the total dollar amount of the ROC by total shares to get the reduction per share to the original cost basis.

    I am finishing that process now, when done, I will do it again for all for 2017. Upon completion, I should have a picture of the final cost basis after the two ROCs.

    Not sure if I should maintain this file separately or try to back-edit each transaction... any comments would be appreciated.

    Despite this in Money, Money remains the best financial software ever. Tried Quicken twice and each time got my money back.  This forum also has proven to be an excellent source for advice on how to get the most from Money. I also checked out the MS Money CPA forum.

    I question the broker's cost basis -and my shares go back 19 years.

    Again, if anyone has any comments on the logic employed, I would appreciate it very much. THANKS!!!

    Tuesday, February 6, 2018 7:43 PM
  • Note that each ROC would only affect the shares that you held at the ex-distribution (like ex-dividend) date. So if you were doing semi-annual purchases, and an ROC transaction overlapped one of those periods those periods, it could get confusing. So in other words, the ROC date would be the ex-d date rather than the pay date.

    It will be interesting to see what  you find.

    Back-editing the transactions sounds like a lot of work, so I think using the spreadsheet will be the deal.

    Tuesday, February 6, 2018 8:25 PM
    Moderator
  • Thank you for bringing this ex distribution date to my attention. I didn't think of that. 

    Since the distribution was originally a dividend, later re-characterized as a ROC distribution,  I check it out on the basis of the ex dividend date.

    I prefer to back-edit the MS Money historical transactions with notations to keep things accurate and uniform. I am a frustrated CPA at heart, so if I don't do the adjustments, it will weigh on my mind. On second thought, back editing may not be doable.. I already edited the dividends as ROC, thus bringing down the general Cost Basis and Average Share Price.... if I edit each past transaction, that will throw off the general cost basis and price.... have to play with it.

    Unfortunately, I have no clue as to what the broker has down, but I will deal with that later. I rather trust my specific share accounting vs the broker.

    Also, since an ROC represents return of your own money, and the IRS allows for specific share sales as a basis, I don't see why one particular lot can't be re-characterized as opposed to the whole history of transactions

    I also hold this stock in 2 IRAs, but my understanding is that IRA withdrawals are looked upon as income streams and not capital gains, I will probably put off the IRAs for a while.


    Tuesday, February 6, 2018 9:02 PM
  • The rule is "What happens in an IRA stays in an IRA". 

    I like to enter dividends, long-term gain distributions, interest, etc. properly so that what is in Money matches my brokerage statements.  But, for tax purposes, it doesn't matter.  All distributions from an IRA over and above any post-tax contributions are taxed a ordinary income.


    Bill Becker

    Tuesday, February 6, 2018 9:29 PM
  • Also, since an ROC represents return of your own money, and the IRS allows for specific share sales as a basis, I don't see why one particular lot can't be re-characterized as opposed to the whole history of transactions

    You can sell specific shares. You typically want to sell the ones with the least gain or even better, the ones with a capital loss, if you have them, but if taking a gain, you probably want to sell the shares with a long term gain. You need to tell your broker. That method depends on the broker. It is probably done on the broker's website, but you need to do that early enough. Usually you would identify the shares to sell when you enter the offer, but you may be able to do it after the execution but before the settlement day.

    If selling shares at a loss, you have to be concerned with a "wash sale". You never have a wash sale on shares you are selling at a gain.

    You cannot allocate the ROC to the shares that you want to allocate them to.


    Wednesday, February 7, 2018 1:00 AM
    Moderator
  • The rule is "What happens in an IRA stays in an IRA". 

    I like to enter dividends, long-term gain distributions, interest, etc. properly so that what is in Money matches my brokerage statements.  But, for tax purposes, it doesn't matter.  All distributions from an IRA over and above any post-tax contributions are taxed a ordinary income.


    Bill Becker


    When taking IRA distributions after making non-deductible contributions, the distribution is divided into taxable and non-taxable portions using IRS form 8606.  Normally you cannot direct that a distribution be made with before-tax or after-tax dollars.  Every distribution contains a percentage of dollars of each type.  (Their is an exception for Qualified Charitable Distribution but those distributions must go directly to the charity and never pass through your control).
    Wednesday, February 7, 2018 5:21 AM