Non-taxable distribution (return of capital)

[Mark Johnson]

Dawning Sky wrote:
> On 5/14/07, Jimmy Kaplowitz <jimmy at kaplowitz.org> wrote:
>   
>> (Please CC me on replies since I'm not subscribed to the list, though if
>> you forget I will try to remember to look at the archives.)
>>
>> Hi,
>>
>> I'm trying to properly account for a so-called non-taxable distribution,
>> or return of capital, that some mutual funds of mine give to me
>> periodically. They consist of, as I said, a return of capital I put into
>> the mutual fund, reducing my cost basis in the fund and lowering the
>> price per share but without reducing the number of shares I own or (in
>> most cases) giving me any taxable income.
>>
>> In the gnucash-user archives from January 2005, I found instructions
>> saying to credit the mutual fund account for the amount of the
>> distribution in a 0-share transaction, and to debit the relevant cash
>> amount for the same amount. This is accepted, however it causes my books
>> not to balance for all dates on or after such a transaction. The assets
>> no longer equal the liabilities plus equity; they grow on a daily basis,
>> while the liabilities plus equity do not. In the trial balance, the
>> debits also do not equal the credits. When I temporarily void those
>> transactions, the books balance again. Something is wrong here.
>>
>> This isn't the usual stock sale split example in the FAQ, since no stock
>> was sold. I have no idea how to fix this; please provide pointers.
>> Thanks.
>>
>> - Jimmy Kaplowitz
>> jimmy at kaplowitz.org
>>
>> P.S. - I'm using Gnucash 2.0.2, and am happy to upgrade to 2.0.5 if my
>> problems are due to a bug that was fixed between the two versions.
>>     
>
> I'm not an account, but I would suggest just treating the return as an
> income (whether it is taxable or not is another issue).  The decrease
> in value of the MF acount will play out by itself since the NAV is
> reduced.
>
> DS
>
>   

It is not simply income as the cost basis of the funds must be reduced.  
This must be tracked for capital gains purposes when the funds are sold.

I have the same problem.  The funds I have also do nasty things with 
capital gains distributions.

I have found no way for gnucash to simultaneously track the cost basis 
and number of shares.  I have given up trying to get gnucash to track 
the number of shares, and treat these funds the same way as the Degas 
painting example in the manual.  (This is a pain in the neck when I want 
to update the unit price, but I can track the cost basis accurately.)

Mark