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Posted by Oilcan on August 11, 2006, 9:20 pm
Please log in for more thread options When I had a return of Capital from a stock, I didn't know until the
end of the year when the company told me how the 'dividend' should be
classified.
R. C. White wrote:
> Hi, Jim.
>
> Yes, just use Quicken's Return of Capital transaction to report receipt of
> these distributions. As in your example, a $2 distribution on shares that
> cost you $8 simply reduces your basis to $6. This is not "gross income" and
> need not be reported on your tax return, but you might as well, since the
> 1099-DIV shows it and TurboTax will handle it automatically.
>
> When your stock basis is $6 and you get a Return of Capital distribution of
> $10, then the first $6 reduces your basis to zero. The remaining $4 is
> gain, so it is gross income, probably a capital gain, to you. Your return
> should report this as a "sale" of the stock for $10, less your $6 remaining
> "adjusted" basis, producing a $4 gain. If you get another such distribution
> next year, say $3, report it again as a sale with zero basis and $3 selling
> price and a $3 gain. (Quicken and TurboTax should handle this
> automatically - but see below for my disappointment with Quicken. I haven't
> installed TurboTax in this beta version of Vista, so I can't load the
> program and remind myself of how it handles this.)
>
> Note two things that Return of Capital distributions are NOT. First, they
> are not actually sales of the shares, although you might need to report them
> that way, because you still own the stock. Second, they are not "capital
> gain distributions"; those happen when the corporation (usually a mutual
> fund) sells capital assets at a profit and distributes the gain to
> shareholders. (If the fund sold for $300 assets that had cost it $200 and
> distributed the whole $300, then $100 would be a capital gain distribution
> and $200 would be a return of capital.)
>
> Hmmm... I just tested this in Quicken 2006 Basic - and was disappointed.
> In a "dummy" account, I recorded a return of capital distribution of $1,000
> on a stock with a basis of $300. Quicken happily shows that I now have a
> NEGATIVE $700 basis in that stock - and the capital gains report shows
> nothing. :>( Maybe someone here has done some research and/or testing to
> come up with a good way to get the right result in Quicken.
>
> When I Googled for "return of capital distribution", this was the first hit
> and it does a pretty good job of explaining the subject:
> http://www.fairmark.com/mutual/nontax.htm
>
> But it doesn't tell how to make Quicken get the right answer.
>
> RC
> --
> R. C. White, CPA [RC]
> San Marcos, TX
> (Retired. No longer licensed to practice public accounting.)
> rc@grandecom.net
> Microsoft Windows MVP
> (currently running Windows Mail 7 in Vista x64 Build 5472)
>
>
> > Any EASY way to handle Return of Capital on dividends in Quicken? Unlike
> > regular dividends, Return of Capital dividends are NOT taxed, as
> > dividends, nor income, but are used to adjust
> > the cost basis of the stock/fund/bond. This
> > counts against the cost of the stock (say you
> > paid $8 for it, and received dividend of $2
> > per share, your cost basis is now $6) Only,
> > when the cost basis goes to $0, do you owe tax,
> > and then the tax is paid at Capital Gains Rates!
> > Quicken doesn't seem to be able to handle this,
> > unlike long term, medium term, and short term
> > cap gain rates! This usually involves Utility
> > stocks, bur also some closed end Bond Funds!
> > Any Ideas ?? Thought I'd ask -- Jim
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