Cost Basis Error in Cap Gains Report v5118

Henry Sully's Avatar

Henry Sully

20 Apr, 2024 03:43 PM

Just upgraded to 5118. Hoping Capital Gains Report would be fixed, but seeing an issue in the Cost Basis column, which provides and incorrect Gain. The problem occurs when the cost basis of the security equals zero or anything less than $0.01.

Why a cost basis of zero you might ask? Well, sometimes a security will issue a return of capital that will reduce the basis to zero. I have this happening in my accounts for a couple of securities I owned, so when the stock, etc. is sold, the gain should be 100% of the proceed received, because gain = proceed - cost basis.

The way I am handing the cost basis going to zero in the register is to sell the security at the cost I paid for it using the Sellxfr action, and then rebuying with the Buyxfr action for the new basis amount, which in this case is zero.

In the Cost Basis report, the amount of zero is being correctly reported. However, what appears to be happening in the Cap Gains report is that the cost basis being reported is equal the number of shares sold times 100. But it should be zero. This leaves me with an incorrect negative value for the gains.

  1. 1 Posted by Stuart Beesley ... on 20 Apr, 2024 06:48 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    To clarify. Is this is the same as Md2023.3 or is it new or has it changed?

    Can you setup a new dummy test dataset which demonstrates your data/reports etc?

  2. 2 Posted by Stuart Beesley ... on 21 Apr, 2024 10:30 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    Henry?

    PS - I struggle to believe that any stock holding with zero cost basis is actually correct.

  3. 3 Posted by HH Sully-Gmail on 21 Apr, 2024 12:09 PM

    HH Sully-Gmail's Avatar

    Hi Stuart,

    I don't know if the information below will display properly or not in the email. This is one report that I was working on yesterday and I just cut/pasted this from my Fidelity Account that is for closed positions (meaning I sold this security already). I did delete my account information from this, which is not something I wanted to make public. This is just one security that was sold in 2022 in one of my accounts and if you can see it below, the cost basis was reduced to zero for whatever reason that was decided by Blackrock and was beyond my control.

    But in fact, when a company pays out a "non-dividend" distribution for its stock, that is money returned to the investor and the IRS requires that it reduces the cost basis. The money is something that is returned to the buyer of the stock and a person does not owe any tax on this money. This happens for REITs and MLPs, which are unique type of investments. And, it absolutely can take the basis to zero over time if you wait long enough and receive enough of these distributions by holding the stock, etc. And a person has to pay tax on the gain when the stock is sold, which would be a 100% gain if the basis goes to zero. This is how the IRS finally gets their share of your investment dollars. For an ordinary dividend payment, the IRS taxes the payment, but not the case on "returned capital". That is why it goes against the cost basis instead.

    I don't know if I will be able to produce a dummy test dataset in the sort term. I have a lot of things on my plate right now. But if you have any investments in your portfolio you could simply produce your own test case by temporarily adjusting what you paid for a stock to zero and see the effect it has in the capital gains report.

    Thanks and best regards, Henry


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    Realized Gain/Loss Detail for 2022
    https://www.fidelity.com/static/common/images/sort_down.gif
    Symbol
    Description Quantity Date Acquired Date Sold Proceeds** Cost Basis
  4. 4 Posted by Stuart Beesley ... on 21 Apr, 2024 12:25 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    To clarify. Is this is the same issue/problem as Md2023.3 or is it new problem, or has the problem changed? I need to know if 2024 changed this issue from 2023?

  5. 5 Posted by Stuart Beesley ... on 21 Apr, 2024 12:34 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    And how do you record these cost basis reductions in MD?

    And then what happens later, can your cost basis go negative? Ie can you ever receive back more than you invested? If not, then what’s the incentive?

  6. 6 Posted by HH Sully-Gmail on 21 Apr, 2024 12:52 PM

    HH Sully-Gmail's Avatar

    Hi Stuart,

    To answer, I don't know if the problem existed in 2023.3 because it was not
    until I downloaded 2024.1 and upgraded did I complete the transaction that has
    the 0 cost basis. So, this is the first time I recall seeing the problem. But
    that does not mean that it was not there before.

    -Henry

  7. 7 Posted by HH Sully-Gmail on 21 Apr, 2024 01:00 PM

    HH Sully-Gmail's Avatar

    Hi Stewart,

    When I get a non-dividend distribution (return of capital), I use SellXfr to
    sell the stock at its current basis (so the unrealized gain becomes zero at that
    point) and the use BuyXfr to purchase it again at the current basis, minus the
    distribution amount. This will set the cost basis to a lower amount and the
    non-realized gain will be higher assuming the price stays the same.

    The cost basis cannot go negative. Once it reaches zero, then the new,
    non-dividend distribution must be treated as a dividend and you pay the tax on
    the dividend at that point going forward and the basis remains at zero. These
    are the IRS rules, not mine.

    Yes, you continue to receive back until you sell the stock, or the company
    decides to no longer pay a distribution/divided to any of its share holders. Of
    course, it has to obey the law in all of this too.

    Thanks,

    Henry

  8. 8 Posted by Stuart Beesley ... on 21 Apr, 2024 01:04 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    FYI. A tip…. There’s no need to SellXfr and then Buy again. Just use a SellXfr txn with zero shares and the dividend amount to reduce the cost basis buy. The sell zero shares is a special flag to MD to reduce the cost basis.

  9. 9 Posted by Stuart Beesley ... on 21 Apr, 2024 01:06 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    So. Basically, your request is that a sell where the cb is zero should return 100% gain.

  10. 10 Posted by Stuart Beesley ... on 21 Apr, 2024 01:10 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    This needs thinking about. Some would argue that a sell of shares with zero cost basis should report zero gain. Anyone else with thoughts?

  11. 11 Posted by dwg on 21 Apr, 2024 01:25 PM

    dwg's Avatar

    If the cost base is zero, and it is possible for that to happen, it requires a certain set of events but I have some shares sitting on a zero cost basis.

    Typically, and depending on the law of the country you are in, I would not expect the cost base not to be allowed to go negative. if an event occurred that would reduce the cost base any further I expect it would be treated as some sort of income in the financial years it was received in. Where I am it is treated as a capital gain.

    The capital gain amount is the amount of the sale less any costs however you would not quote any percentage, mathematically it is infinity so invalid.

  12. 12 Posted by Stuart Beesley ... on 21 Apr, 2024 01:31 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    … @dwg- so are you voting yes or no to allow a sale with zero costbasis to report 100% gain?

  13. 13 Posted by Stuart Beesley ... on 21 Apr, 2024 01:41 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    I’m going to have to test this as I seem to remember it always used to report 100% gain and I can’t see where the logic would zero it at the moment.

  14. 14 Posted by Stuart Beesley ... on 21 Apr, 2024 01:48 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    Thinking about it, I may have been the investment performance report that was tweaked for this… hmmmm.

  15. 15 Posted by dwg on 21 Apr, 2024 02:15 PM

    dwg's Avatar

    Stuart, No it is not valid.

    Say you sell for 100 and the cost was 50 you have (100 - 50)/50 * 100 = 100%

    if the cost was 0 you have (100 - 0)0 * 100 = undefined

  16. 16 Posted by Stuart Beesley ... on 21 Apr, 2024 05:36 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    Hi Henry, OK I think you found a long standing bug... In essence there is a 'hack' to allow sell zero shares, but this checks the calculated sell cost is zero rather than the qty being zero.. As such you scenario falls foul of this and hence it's not working.. So I have fixed that and I now get what you are expecting... NOTE: You should use sell zero shares with a value to reduce the cost base.. Anyway, here are some sample reports..

    I have some more testing to do... and then I can propose the fix to IK for consideration...

  17. 17 Posted by HH Sully-Gmail on 22 Apr, 2024 12:31 AM

    HH Sully-Gmail's Avatar

    Hi,  I apologize for saying 100% gain. The % gain would definitely not be 100%
    with a basis of zero. What I was trying to say is that the proceed = gain with a
    basis of zero and so I was trying to communicate that the gain would be 100% of
    the proceed, or another way to say it was all gain. It was more a figure of
    speech rather than being technically correct. So sorry for the confusion I may
    have caused.

    What I am asking to be done is to provide the capital gain in terms of $$ amount
    for any positive number for cost basis, including zero.

    So, if you sell the stock for $100 and the basis = $0, then the Gain = Proceed -
    Cost, which would then be $100 (Gain) = $100 (Proceed) - $0 (Cost).  I am not
    really asking for a percentage, just a correct dollar amount and for a cost of
    zero to be a valid basis.

    Now, when I enter anything positive number (including 0) that is less than $0.01
    for the cost basis in the transaction register, it reports a cost basis that is
    100 times the number of shares, which is just bizarre. When I double checked
    this just now, I am seeing this error in both the Cost Basis report and the
    Capital Gains report.

    Thanks, Henry

  18. 18 Posted by HH Sully-Gmail on 22 Apr, 2024 01:10 AM

    HH Sully-Gmail's Avatar

    Hi Stewart,

    SellXfr with zero shares for an amount of the dividend returned does not do
    anything in MD 2024 v5118. Also, I had difficulty making this work in previous
    versions as well. The Share Lot Matching (Edit Lots in Security Detail) seems to
    ignore this transaction, and so the cost basis does not change. It seemed that I
    got this work in the past by setting the security for average cost, but that did
    not seem to work out so well when you need to track basis and gains on each lot.
    Not of all us want or need sell all of our shares at once, and in the US the IRS
    requires gains reporting at the lot level. They only allow averaging for mutual
    funds or if you sell all of your shares together.

    However, Using the SellXfr and BuyXfr to make the basis change works well and I
    will stick to doing it that way for now unless MD can add a new feature to
    adjust cost basis another way, which would be great because this is a lot of
    extra work (no pun intended) for those of us that need to do tax accounting this
    this way.

    Thanks,

    Henry

  19. 19 Posted by dwg on 22 Apr, 2024 01:38 AM

    dwg's Avatar

    You have never been able to sell zero shares when using Lot costing it has only worked with average cost.

    It is a workaround to deal with Returns of Capital as Moneydance does not have such an action.

  20. 20 Posted by Stuart Beesley ... on 22 Apr, 2024 06:47 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    @Henry - You are correct. I assumed you were using average cost. You cannot Sell zero shares with LOT control. So for this you will have to continue to sell/buy.

    I’ll have to test the sell all with zero cost basis for gains too with LOT control.

  21. 21 Posted by HH Sully-Gmail on 22 Apr, 2024 12:59 PM

    HH Sully-Gmail's Avatar

    Hi Stewart,

    I did initially setup my securities with average cost basis before I got really
    into serious working with MD with investments (I started with MD in 2015 after
    switching over from brand Q that I had used for a very long time). However, my
    financial institution always provides reports based on lots. The difference in
    the gains reported tend to always be different when using averaging verses lot.
    And as you may know, selling is not always done using a FIFO method. Selling
    methods are under the control of the one selling, which used to be me, but is
    now being done by my financial advisor. Certain lots can be picked out for
    selling to optimize for tax purposes.  Of course, if all the lots are always
    sold at the same time, then it should not matter. Averaging seems to work then.
    But for me, my securities are rarely sold all at once. So, I learned that if I
    wanted to keep track of gains in such a way that it matched with what is being
    reported to the IRS, then I would have to be more disciplined and use LOT
    control always. So, that is what I do now. And I think in the end by having a
    single method that always works is best for me.

    Having said that, I did not try to see what happens in MD reporting with cost
    basis / cap gains using an average method. Everything I have presented so far is
    with using the LOT control method.

    Thanks for your help!

    Henry

  22. 22 Posted by Stuart Beesley ... on 22 Apr, 2024 03:00 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    .

  23. 23 Posted by dwg on 22 Apr, 2024 03:09 PM

    dwg's Avatar

    For Lot Base costing to work with RoC in Moneydance it would need core changes to Moneydance, it would have to have specific support for the action.

    Many of us have a need to maintain lot information and we generally have to do it outside of Moneydance due to the amount of work that would be required to maintain the information within the program as it currently stands.

  24. 24 Posted by HH Sully-Gmail on 22 Apr, 2024 03:56 PM

    HH Sully-Gmail's Avatar

    Yes you are; I am sorry, Stuart.

    -Herbie

  25. 25 Posted by Stuart Beesley ... on 23 Apr, 2024 12:02 PM

    Stuart Beesley (Mr Toolbox)'s Avatar

    OK, a code fix to allow a buy x shares for zero cost basis, sell x shares with zero cost basis for the full amount as capital gain (both average and lots) - etc - has been proposed to IK ...

  26. 26 Posted by HH Sully-Gmail on 23 Apr, 2024 12:09 PM

    HH Sully-Gmail's Avatar

    Thank you Stuart!

    -Henry (Herbie also...I go by both LOL)

  27. 27 Posted by Stuart Beesley ... on 25 Apr, 2024 11:54 AM

    Stuart Beesley (Mr Toolbox)'s Avatar

    FYI - there is now an Alpha available (that fixes this endless loop issue with Apple / split stocks, and also your sell/buy with zero cost basis scenarios). WARNING. This is an Alpha - so pre-preview… BACKUP first and only use on test data.. If you don't want to test, then wait for the stable code version.....

    Let me know if a) the ‘hang’ has gone, and b) the results..

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