[GNC] Return of capital, lots & accurate gains

[David Carlson]

AFIK that issue with RoC is an artifact of US tax law, not GnuCash.  Can't
do much about it.



On Mon, Mar 31, 2025 at 3:12 PM R Losey <rlosey at gmail.com> wrote:

> 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
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-- 
David Carlson