[GNC] Return of capital, lots & accurate gains

[R Losey]

It IS a bit annoying - during the year, the dividends that mutual funds pay
are merely listed as "dividends"; I have to wait for the yearly 1099-DIV to
find out how much of the "dividend" is actually RoC or "Nondividend
Distributions"



On Mon, Mar 31, 2025 at 11:37 AM Kalpesh Patel <kalpesh.patel at usa.net>
wrote:

> You are correct that they need to issue a 1099 by mid-February which is
> caveated that it is preliminary one, and final one coming later when they
> have handle on RoC.
>
> Unless I am mistaken here, on 1099-DIV they provide RoC on line 3)
> Nondividend Distributions. Even if the distribution of RoC is  more
> frequent than yearly, it would be  denoted in the accompanying  statement
> as such. I guess it ultimately dependent on servicer, and their process how
> they handle it. I normally see  RoC play out in REIT mutual funds more
> often than not, but I also see it in investments available to accredited
> investors.
>
> -----Original Message-----
> From: John Ralls <jralls at ceridwen.us>
> Sent: Sunday, March 30, 2025 7:46 PM
> To: stepbystepfarm at comcast.net
> Cc: gnucash-user at gnucash.org
> Subject: Re: [GNC] Return of capital, lots & accurate gains
>
>
>
> > On Mar 30, 2025, at 12:32 PM, Michael or Penny Novack via gnucash-user <
> gnucash-user at gnucash.org> wrote:
> >
> > On 3/30/2025 3:16 PM, Kalpesh Patel wrote:
> >>
> >> I was under the understanding that the effect of return of capital
> (RoC) is that the capital gains get postponed until when you sell the
> commodity, and that the cost basis gets reduced by it when RoC is
> distributed.
> >>
> >> In the States, the financial servicer should not be sending a dividend
> statement, and re-characterize it as a RoC at another time - they are two
> different things and are treated differently for the tax purposes.
> >>
> >> I normally go back to the original purchase transaction and readjust
> the cost basis for them. It does become a bit cumber some if multiple lots
> are involved but I believe that is the correct treatment of it. I welcome
> weigh in from pro's than I am.
> >
> > Correct ---- You debit cash (for the check received) and credit the
> basis. LATER (when eventually sold) will affect capital gains since you
> subtract the (remaining) basis from the sale price.
> >
> > However -- terminology can be historic, so a return of capital
> distribution is still called a "dividend". Perhaps because at the corporate
> level the same rules apply? << becomes a liability when declared by the
> BOD, that is almost certainly well before the date when to be paid out.>>
>
> The following is a totally USA perspective. I have no idea if other
> countries even allow returns of capital:
>
> I think it depends on the type of security. If the investment sends you a
> K-1 then it can do returns of capital. If it sends (or causes your broker
> to send) a 1099 then it pays a dividend or interest.
>
> A return of capital isn’t a capital gain, it’s a reduction in basis, at
> least in theory and only until they’ve given you back all of your
> investment. Once that happens then it turns into ordinary income.
>
> But things get messy when you invest in a mutual fund that in turn invests
> in private equity or master limited partnerships. K-1s aren’t due until the
> end of February (and I’ve gotten them as late as mid-March). Until the fund
> gets the K-1s and runs the numbers it doesn’t know how much of what it paid
> to its customers in the last year was RoC… but it had to issue the 1099s by
> mid-February so they have to issue revised ones after they’ve punched in
> the K-1 numbers.
>
> Regards,
> John Ralls
>
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-- 
_________________________________
Richard Losey
rlosey at gmail.com
Micah 6:8