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Return of Capital

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 in Quicken and/or GnuCash?

Reply to
Keith Snyder
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In the annual statement provided around February, REIT funds should break down the return of capital by quarter. I know Vanguard's VNQ does. With careful record-keeping, one can figure out what ROC goes with what re-invested dividend.

I do not re-invest my REIT fund's dividends and so upon selling shares of the fund, I do not have nearly as much work to do. I use a spreadsheet to track ROC etc. yearly for my REIT fund and my individual REITs.

Reply to
Elle

I'm not sure about Quicken for Windows, but in Quicken 2007 for Mac I've developed the following technique:

  1. Create a new investment income category, "?RetCap" for Return of Capital.

  1. Enter the Return of Capital amount twice, as follows: (a) Enter an RC transaction and put the investment account into the transfer line. As a result, this will not change the cash in the account, but it will adjust the basis of the security so that when you run a capital gains report the basis of the security is correctly figured. The only problem that can arise is if you sold the security between the ex-dividend and payment dates, because the ROC on that subsequent dividend won't hit the security, unless you move that transaction to before the sale date. (b) Enter a MISC transaction for the security and put ?RetCap in the split line. This does increase the cash in the account by the amount of the ROC and gives you a figure that will show up in reports.

  2. You can now create a "Form 1099-DIV" report in which you include the above "?RetCap" category along with the other dividend and CG distributions. I have actually added some subcategories to ?Div for foreign dividends, non-qualified dividends, US dividends, plus a
*ForTax" expense, etc. so that the Quicken report gives you all the information you need for tax purposes (which may be more complete than the 1099 you get from the broker, because you can add in the information from the various supplemental letters they send you).

  1. As you get the information about the details, you probably need to go back into the account and change each month's entry for the security to reflect the now-available information. I usually use the Section 19A notices that come out during the year to get an approximate breakout of the type of income ahead of time.

Reply to
Tom Healy CPA

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