Return of Capital Workaround

john.prewitt's Avatar


28 Jan, 2019 07:08 PM

Return of Capital occurs when a company re-classifies a previous dividend to a reduced dividend and provide a Return of Capital. The IRS says this Return of Capital is a Non Dividend Distribution. That is, the dividend amount is reduced by the Non Dividend Distribution amount and the Non Dividend Distribution should reduce the cost basis for the security by the Non Dividend Distribution value. You will noticed this activity on the year end report or 1099 from the brokerage house.
This happen to me and I had to change the original transaction to reduce the dividend amount (285.31) by the Non Dividend Distribution value (82.96). The revised dividend amount is now 202.25. To reduced the cost basis I added a SellXfr transaction to remove 0 shares with an amount of the Non Dividend Distribution value (82.96). This transactions affected the cash balance so I had to add another transaction of MiscInc with the Non Dividend Distribution value of 82.96 to get a correct cash balance. See the attached screen shot.
In my case the security affected is set up for Average Cost Basis so which lot affected is not a factor. I don't know how to handle securities which are not using Average Cost Basis have multiple lots. My suggest is that MD provides a Non Dividend Distribution transaction which has pop up window to allow the user to select which lot to adjust since this would allow the user to adjust the lot that the brokerage house adjusted.

  1. 1 Posted by dwg on 28 Jan, 2019 08:30 PM

    dwg's Avatar

    i'm a fellow user.

    When you receives a return of capital I would expect that you have received some cash, after all the cost basis for the shares has been reduced and you would expect to have a future Capital gains event that would be higher than it otherwise would have (or a lower loss in that unfortunate event) So it results in a deferred Tax event.

    I have never seen a return of capital that is isolated to a single lot of shares I have only seen returns of capital that are spread evenly over all shares held, where I am they are usually even announced as so many cents per share.

  2. 2 Posted by john.prewitt on 28 Jan, 2019 11:27 PM

    john.prewitt's Avatar

    My it's name Non Dividend Distribution refers only to Dividends. Over the past 10+ years I have had to account for many of these cost basis adjustments.

    The first image shows the Dividend from the monthly statement for the security VANGUARD REIT ADMIRAL, VGSLX.

    The second image shows the Non Dividend Distribution for security from the 1099 for 2 dividends for the above security.

  3. System closed this discussion on 29 Apr, 2019 11:30 PM.

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