[GNC] Return of capital, lots & accurate gains

[Geoff]

Hi Chris

Like you, I use Lots to automatically generate Realized Gain/Loss 
transactions.

IMHO this is the correct approach:

 > each lot I continued to own, I created two splits: one selling for its
 > original cost basis and another buying for the lot’s adjusted, 
reduced > cost basis. Then in the lots window, I closed the still-owned 
lots at > their original cost bases, generating no gains/losses, and 
opened new > lots at their adjusted, reduced cost bases.


To achieve this, I suggest that you ignore the Stock Assistant and do 
the following manually:
(0) Take a backup.
(1) In the Lot Editor, locate all the affected Sales Lots and delete them.
(2) In the Register, delete the corresponding Realized Gain/Loss 
transactions.
(3) For each Distribution that included a return of capital component:
(3.1) For each Lot that had a non-zero balance at the time of the 
Distribution:
(3.1.1) Work out the cost basis of the Lot
(3.1.2) Add a split to the Distribution to "sell" that Lot at its cost 
basis - zero capital gain.
(3.1.3) Add a split to the Distribution to "buy" that Lot at its newly 
reduced costs basis.
(3.1.4) The cash component of the Distribution should make up the 
difference in value.
(4) In the Lot Editor:
(4.1) Match off the new "sell" splits entered in (3.1.2) with their 
original purchase splits.
(4.2) Match off the new "buy" splits entered in (3.1.3) against your 
original Sales splits.
(5) Take backups as you go.
(6) NEVER USE THE "SCRUB" OR "SCRUB ACCOUNT" BUTTONS - They will trample 
all over your carefully matched splits.
(7) Remember that if you get tangled up, you can always delete all Lots 
and just start again, this won't affect your underlying transactions.


NOTES:
(3.1.2) & (3.1.3) could be combined to a single split for the nett 
change in cost basis, but I prefer to "reverse and re-enter" to make it 
clearer.

With 4 x distributions x 2 years this will be quite a lot of work.


Hope this helps, let me know if you need any further help.

Regards

Geoff
=====

On 29/03/2025 8:33 am, Chris Williamson wrote:
> Hi. I have a question for someone who understands how to adjust the cost basis
> of a lot in GnuCash, so that it can accurately calculate the Realized Gain/
> Loss transaction.
> 
> In my brokerage cash account, I received some payments the brokerage listed as
> dividends. The company that paid these cash distributions later reclassified
> them as returns of capital. How do I create adjusting transactions that link
> these return of capital payments to their corresponding stock lots in GnuCash,
> so that it both accurately recalculates Realized Gain/Loss on the shares I’ve
> already sold and accurately calculates Realized Gain/Loss when I sell the
> shares I still own?
> 
> Here are more details:
> 
> I have used GnuCash to keep track of my personal finances for 20 years,
> including buying and selling stock for the last 5 years.
> 
> When I buy stock, I use the Lots in Account window to create a new lot and
> link the buy split to the new lot.
> 
> When I sell stock, I usually let the brokerage automatically identify the
> lot(s) to sell from, which it does using the first in, first out method. Other
> times, I choose to sell from specific lots. Before recording a sale in GnuCash,
> I open my web browser to the closed positions screen in my brokerage account.
> Then, in GnuCash, I link the sell split to the same lot the brokerage sold
> from, and GnuCash automatically creates a Realized Gain/Loss transaction,
> which I check against the gain/loss the brokerage shows. This way, when the
> brokerage gives me my annual tax reporting statement, I can reconcile it with
> my realized gains/losses in GnuCash and know the brokerage has reported the
> correct amounts to the government.
> 
> The last 2 years, I have found that the gains for one particular company’s
> stock listed on the brokerage’s tax reporting statement no longer match the
> gains I had been carefully double-checking in GnuCash after each sale. I
> learned that this company had reported to the government that its quarterly
> cash distributions, which appeared in my brokerage account as dividends, were
> “distributions to its shareholders in excess of its current and accumulated
> earnings and profits”. In other words: the dividends were reclassified as
> returns of capital. The brokerage made adjustments to reduce the cost bases of
> the shares I owned as of the distribution record dates, and the lower cost
> bases increased realized gains.
> 
> In the GnuCash Tutorial and Concepts Guide, the part on The Common Usage, in
> the Investments chapter, there is a Return of Capital page. It advises to
> enter, in the stock register, one split of 0 shares at 0 price, with the value
> of the return of capital payment received in the Sell (credit) field. The guide
> says the other side of the double entry would usually be a debit (Buy field) to
> the brokerage cash account.
> 
> The guide also says, “It is not possible to use the Stock Split Assistant to
> do this type of transaction.” However, in the GnuCash Manual, in the Tools &
> Assistants chapter, on the Stock Transaction Assistant page, under “Types of
> stock transactions supported by the Stock Transaction Assistant”, one of the
> items is Return of Capital. And in GnuCash, in the stock register, in the
> Actions menu, when I select Stock Assistant…, on the assistant’s Transaction
> Type page, in the Type drop-down list, there are both a “Return of capital”
> item and a “Return of capital (reclassification)” item. When I choose “Return
> of capital (reclassification)” and step through the pages of the assistant by
> clicking the Next button, the assistant allows me to enter information on the
> Stock Value, Fees and Dividend pages. The assistant skips over the Capital
> Gains page, with no way to get to it. The last page of the stock assistant
> shows a summary of the splits it will create. The credit split is what the
> Tutorial and Concepts Guide advised me to enter manually; the debit split goes
> instead to the dividend income account.
> 
> Neither the advice in the guide nor the stock assistant results in splits I
> can link to lots, since only splits with nonzero shares appear in the lots
> window.
> 
> Looking back at how I handled this issue last year, it appears that, for each
> distribution payment I received, I deleted the dividend split. Then, for each
> sale before I the date I received this return of capital, I created a separate
> capital gains income split with the amount of additional gain to credit to
> those shares. That would have given me two gain splits to reconcile with each
> of these transaction gains listed on my brokerage tax reporting statement. For
> each lot I continued to own, I created two splits: one selling for its
> original cost basis and another buying for the lot’s adjusted, reduced cost
> basis. Then in the lots window, I closed the still-owned lots at their
> original cost bases, generating no gains/losses, and opened new lots at their
> adjusted, reduced cost bases. I used lot titles and notes to help me keep
> track of the connections between the new and old lots. E.g.: If Lot 20 was the
> original cost basis, then Lot 20-a was the adjusted cost basis, and the actual
> purchase date of the shares was the Lot 20 opened date.
> 
> (In the past, when I have tried to link adjusting splits to existing lots,
> things quickly ended up extremely scrambled. Thus the strategy above, which
> avoids messing with existing lots other than to simply close them at their
> original cost. I often do this to adjust for wash sales, too. That’s a subject
> for another day.)
> 
> Anyway, am I missing some easier/better way to handle this kind of
> reclassification of dividends as return of capital, which would allow me to
> continue keeping track of lots and double-checking my gains in GnuCash against
> what my brokerage shows?
> 
> Thank you!
> 
> Sincerely,
> Chris Williamson
> 
> 
> 
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