Captial Gains Report Dates

[Ivan]

Hi Mark,

On the Capital Gains Report I have a question on the date range under the column Bought. I have an ETF for which I made several purchases over a date range and then completely sold (call this batch A). Then a few days later I bought more, continued to buy for a time and then again completely sold (batch B). On the report the Bought date range for batch B shows the same purchase date as batch A. Since A was completely sold out before any of B was purchased I thought B should have its own initial purchase date. Is this a bug or am I not understanding how this report works?

Thanks,
Ivan

[Mark]

Hi Ivan,

What accounting method are you using? If you are using Average then the Bought column for batch B will have a starting date in the bought date range that equals the starting date of the bought date range for batch A. The end dates in the bought date range should be different for this described case though. From the online help:

Fund Manager uses the Average Cost Single Category Method to calculate your cost.

When selling shares using the average method the cost basis is determined by multiplying the number of shares sold times the average price paid for all shares prior to the date of the sell transaction. (All purchases are included in this average, even if there have been previous sell transactions)

[Ivan]

Thanks Mark.

I am using the Average accounting method, but I'm wondering why the report is set up this way. I'm not a tax expert, but we do our own taxes. I'm looking at IRS publication 550, Investment Income and Expenses (Including Capital Gains and Losses) For use in preparing 2010 Returns. On page 43 under Stocks and Bonds the section Identifying stock or bonds sold says: "If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds." This appears to apply no matter what method is used to calculate basis. In the section on mutual funds on page 45 it says the same thing.

[Mark]

Hi Ivan,

I'm not a tax expert either, and that IRS description is not very specific on how to report the bought date when considering an Average cost accounting method. In the case of Average accounting Fund Manager calculates your basis off the average of all purchased shares prior to the sell transaction. This is also what it uses for reporting the bought date. In your example, I agree it would also make sense to report only from the date of your purchase after you sold all the original shares. It would also make sense to report the bought date based off a FIFO share accounting method, as that is how short/long term shares are determined, even when using Average cost accounting. I'm not sure which method is more right, and I suspect all 3 would be acceptable to the IRS as long as you properly categorize long versus short term gains/losses, and report the correct gain/loss.

If you would prefer your gains/losses to be itemized in greater detail, you can turn on the "Use Wash Sale Rules" option under "Options / Report Settings... / Capital Gains" if you have the Professional or Advisor version. When this option is turned on, the Bought column is only a single date. When you have a sell transaction that spans multiple purchases, you will get a line item in the Capital Gains report for each lot, so there is a unique Bought date on each line. In your example, you would get a bought date for the batch B shares you sold for the date you purchased them after you sold batch A.