Return of Capital

Mike C. subscribe307 at verizon.net
Sat Feb 20 10:18:15 EST 2010


Not sure what you mean by [if they were all held during the subject 
income period].  According to IRS Pub 17 "A non-dividend distribution 
reduces the basis of your stock.  It is not taxed until your basis in 
the stock is fully recovered.  This nontaxable portion is also called a 
*return of capital*.  If you buy stock in a corporation in different 
lots at different times, and you cannot definitely identify the shares 
subject to the non-dividend distribution, *reduce the basis of your 
earliest purchases first.*  This is an easier way to handle it than 
reducing the cost of all shares and I think it can be accommodated in GC 
by going to the date of the first purchase and credit Asset/REIT the 
amount of the distribution with _*no*_ shares and debit Asset/bank 
account.  I haven't tried this so maybe someone else can comment if it 
works or if there is a better way of implementing a return of capital.
Mike

On 2/18/2010 11:09 AM, Paul Schwartz wrote:
> Hope I;m not duplicating another reply, but I haven't seen one.
>
> Assuming that all of the shares are held in the same account [gnucash], I credit the asset for the amount of the capital return. Since the return of capital applies equally to all of the shares [if they were all held during the subject income period], there would be a uniform reduction in basis for all shares. I do my computations outside of Gnucash and make the appropriate entries when shares are sold. Depending on your normal accounting practice, gains are calculated upon sale using FIFO, LIFO, or average cost.
>
> HTH,
>
> Paul
>
> --- On Wed, 2/17/10, John K. Taber<jktaber at charter.net>  wrote:
>
>    
>> From: John K. Taber<jktaber at charter.net>
>> Subject: Return of Capital
>> To:gnucash-user at gnucash.org
>> Date: Wednesday, February 17, 2010, 7:16 AM
>> REITs and REIT mutual funds
>> "dividends" (taxable) may include return of
>> capital which is not taxable, but is supposed to lower your
>> cost basis.
>>
>> My trouble is, I don't know until mid-Feb how much return
>> of capital was
>> masquerading as dividends, and I don't see how to associate
>> the
>> return of capital on the 1099-Div form with which lot of
>> the REIT owned by
>> me.
>>
>> How do you all account for return of capital, including
>> adjusting your cost
>> basis?
>>
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