I seem to remember somebody posting that the ADR fees, that the depositary bank charges when you get a dividend, add to the basis. Was that correct? I did a lot of searching to try to find that, and I came up empty.
For example, I get a $90 dividend, and I get charged a $2 fee for the dividend, netting $88 in cash. $90 is put on the 1099-DIV for that stock. Is the $2 a miscellaneous investment expense, (and thus not of use to me) or does it reduce the basis by $2?
No, it does not affect basis.
Since this is an ADR, is the $2 a foreign tax that you paid and is automatically taken from your dividend?
If so, you may be eligible to take a foreign tax credit or deduct the foreign tax on schedule A. If all your foreign tax is from passive sources such as dividends, and is less than $300 (600 MFJ) you simply take the credit on page 2 of Form 1040.
Otherwise you can fill out form 1116 to calculate the amount of foreign tax credit.
If the $2 fee is not foreign tax withheld, it is a misc 2% investment expense.
When you own American Depository Receipts (ADRs) of a foreign company trading on U.S. exchanges, you will generally see two charges when dividends are paid: a dividend fee (sometimes listed as Admin. Fee) and foreign taxes paid. You report the gross amount of dividend as that is what will show up on your 1099-DIV. Assuming you meet the requirement to avoid filing Form 1116, you can directly deduct the foreign tax paid on the applicable Form
1040 line. The dividend fee is not added to cost basis of the shares. It is your cost for collecting the dividend and as such is a misc. itemized deduction. The fee is stipulated in the Deposit Agreement between the depositary bank and the company.
Yep. This one was not the "withheld" tax.
Thanks. That's what I had been thinking, but I hoped otherwise.
Thanks.
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