This is for 2013. I will be submitting an amended return. I have a lot of SVXY transactions for 2014 as well, but now I feel confident I can deal with those properly when I receive the k-1. It's a relief because now I feel comfortable enough to go back to trading SVXY, instead of using XIV. I had sworn off SVXY because of this tax stuff, but it is the instrument I'd rather trade because of the credit risk inherent in XIV. Anyway, it's just this 2013 return I need to be concerned about right now. What do you mean by "correct transactions in time"? I should mention that I have three separate SVXY transactions. First two lots bought on one date, third lot bought later; all sold on the same date. What I have done is make one additional entry which lists the total amount of my purchased shares over time, using the buy date as my first SVXY purchase for the year. Then I am using the 11c amount as cost basis and 0 as the proceeds. Hoping that will be ok, but if you advise doing it another way since I have three separate lots, let me know.
One more question, about something I just noticed: I have a small deduction in 13 with a "K" next to it on my K1. It seems like somehow this is being subtracted out of the number in 11C, because under L current year increase I see a number which represents 11c with the deduction in 13 being subtracted out. Because of this deduction, should being using the "current year increase" figure instead of the figure in 13k for my increased cost basis?
If you traded SVXY a lot of times with buys and sells on many different dates, then on your K-1 you would have many different lines on the sheet where it has these columns: Units Disposed, Acquisition Date, Disposition Date, Cumulative Adjustment to Tax Basis, etc. What I am saying is that you would match the data from these columns to your actual trades. I.e., some of your shares would have adjustments to their cost basis and some might not and that sheet on your K-1 tells you how you would allocate the cost basis adjustments. That is what I meant by "correct transactions in time." But since you only have one disposal event, you will probably only see one or two rows on this page. The simplest way for you to add these cost basis transactions to your Form 8949 or Schedule D is to actually just copy straight from your K-1. So for example, on a hypothetical SVXY K-1, there might a line on that page that reads: Units Disposed: 100.0, Acquisition Date: 10/31/2013, Disposition Date: 11/1/2013, Cumulative Adjustment to Tax Basis: 62 So on your Form 8949, you would list this as a new transaction: 100 SVXY, 10/31/2013, 11/1/2013, Cost Basis: 62, Sell Price: 0, Total: -62 So *for every line* in your K-1 on that one page which shows cumulative adjustment to tax basis, then you would create a new cost basis transaction on your Form 8949 or Schedule D. That way the numbers should just magically work out in terms of total tax liability and also you can look back at your tax return and pretty clearly see where those cost basis transactions are coming from (they are coming directly from your K-1). It also might help if the IRS ever has questions, try to make it as clear as possible for them. And if you do it this way, you won't have to worry about tracking all the boxes on the K-1 because they should all be included in the "Cumulative Adjustment to Tax Basis" column on that sheet. I.e., you said you had a 13k deduction. Well that should just fall out from using the method I am suggesting. And you are correct in saying that your total cost basis adjustment can actually be found on your K-1 in box L under "Current year increase (decrease)". To double check, if you add all the values in the "Cumulative Adjustment to Tax Basis" column on that one sheet, they should match the "Current year increase (decrease)" total. If you wanted to group all of these cost basis adjustments into one transaction, you could probably do that (and put Various for buy and sell dates), but I would probably just use the K-1 sheet to give you specific dates and lots just so it is easier to understand what is going on. Hopefully this makes sense.
For my disposed units there is no cumulative adjustment to tax basis. I have three lots of disposed units, all showing "0" for the cumulative adjustment to tax basis. In total there are three lots, two purchased on 10/07/13, one one purchased on 10/09/13. All Sold on 10/23/13. So on my Schedule D right now, I just have the three transactions, as they were imported from my brokerage statement, with no adjustment to cost basis. And I recently added the additional transaction you recommended which subtracts out the amount in 11c and has zero proceeds. Sound good? After our discussion about "current year increase," I just want to verify: Should the additional entry on my sched D to account for my increased cost basis, which will have the "0" proceeds, list the amount in 11c, or the slightly smaller amount in "current year increase" as my purchase price? The difference in these amounts if actually pretty negligible, but hopefully having the right one will leave me less open to doubt from the IRS. And can I still just use the earliest date (10/07/13) as my buy date and group all three lots of shares together into one? I don't see any better way to do it since I have no "cumulative adjustment to cost basis" transactions to enter here and just need to subtract out that increase listed on the k1.
Well, that is strange. Do you have any numbers in the "Cumulative Adjustment to Tax Basis" column (other than 0)? Did you hold a SVXY position in any account from the previous year or into the next year (2014)? Something is not adding up here. I have an SVXY K-1 from 2013 in front of me. I am looking at page 6 (of 7) and it has the following columns: Units Disposed, Acquisition Date, Disposition Date, Sales Proceeds, Original Purchase Amount, Cumulative Adjustment to Tax Basis, Total Basis, Total Gain/Loss, Short-Term Capital Gain/Loss, Long-Term Capital Gain/Loss Whenever I have non-zero numbers on my K-1 (such as in box 11c), they are reflected in the Cumulative Adjustment to Tax Basis column. For example, in my 2013 SVXY K-1 I have an 11c of $1,930 and a 13k of $4. On that 6th page, the only columns that have info in them are Units Disposed, Acquisition Date, Disposition Date, and Cumulative Adjustment to Tax Basis. I have 3 rows: Units Disposed, Acquisition Date, Disposition Date, Cumulative Adjustment to Tax Basis 100.0, 12/31/2012, 1/2/2013, $1,926 5.0, 1/2/2013, 1/2/2013, $0 5.0, 1/2/2013, 1/2/2013, $0 If I add the cumulative adjustments up I get $1,926+$0+$0 = $1,926. If you take the box 11c ($1,930) and subtract out the deduction of box 13k ($4), you get $1,930 - $4 = $1,926 which matches the cumulative adjustments. If you can't match up your totals like this then something is wrong. In this case, only the "100.0, 12/31/2012, 1/2/2013, $1,926" transaction had any non-zero cumulative adjustment to tax basis so I would put on my Form 8949, something like: Bought 100.0 SVXY on 12/31/2012, sold on 1/2/2013, cost basis $1,926, sales of $0, profit -$1,926. This mirrors the cumulative adjustment to tax basis column. I would double-check to make sure you aren't carrying a SVXY position from 2012 into 2013 or from 2013 into 2014.
Well, so much for my thinking this was simple! I have the same columns on my 2013 sales schedule as you. But all cumulative adjustments are listed as 0. To clarify: The three transactions on my sale schedule represent a total of 30 shares of SVXY I bought and sold in March 2013 for a small profit. I then bought 120 shares of SVXY in November, which I continued to hold into 2014. I also want to note that the only significant amount on part III of my k1 is the amount listed in 11c, which is 2,411. Interest income is 1, net short term cap gain is listed as 0, and 13k is 11. Since I have "0" cumulative adjustments, does this mean my taxes are actually correct and I shouldn't change anything? I am supposed to be paying taxes on the 120 shares I bought in November and held into 2014? If not, I still think I must have been excessively taxed on my disposed units for 2013, because when I create a transaction with a purchase price for the amount in 11c onto my sched D with 0 proceeds, I do arrive at a number close to my actual SVXY profits for 2013.
I want to refer you to this accounting discussion, because although it is about a different proshares ETF it seems relevant to what we are trying to figure out here. http://forum.thetaxbook.com/archive/index.php/t-20027.html I think the most relevant part is the case discussed at the end of the thread. You can search for: "Client purchased 96 shares" and start reading there. The case is similar to mine in some ways because this trader still owned shares at the end of the year, but the accountant doesn't seem to think this is relevant and still advises increasing the cost basis by the amount of the "current year increase." But this trader showed a large short term gain in box 8. Whereas I have 0 listed in 8. So not sure. The more I research, the more confusing it gets, with all the variables there are. What do you think?
Okay, well this could be the issue then. When you hold a position over the year boundary, you will get dinged by the K-1 totals for the previous year (2013 in your case) and your cost basis for your shares does increase, but since you have not closed out the position yet, you will not get this benefit until the next tax year (2014). So check your 2014 K-1 (assuming you eventually sold the SVXY position in 2014) and see if there are positive numbers in the "Cumulative Adjustment to Tax Basis" column there. What is happening is that the tax benefit is just being delayed into the next year. So your 2013 taxes are correct, but your 2014 taxes will be less than you think. In the end, it should balance out. Does that make sense? I would check if the first row on your 2014 K-1 on the Cumulative Adjustment column is the same as your 2013 K-1's "current year increase" in Box L. Then you will know you are on the right track.
Ok, this all makes sense. Unfortunately Proshares has not yet issued my 2014 k-1, so until they do, I will have to remain in suspense. But why is there no cumulative adjustment to tax basis for the 30 shares I bought and sold in 2013?
The reason that there is no cumulative adjustment to tax basis for some shares and there is some for others depends on when the SVXY custodians had to perform maintenance (i.e., buy and sell futures) in order to run the fund properly. If you happened to hold SVXY shares while they were doing maintenance, then you will receive non-zero numbers on your K-1. If you held shares of SVXY, but never when they were doing their maintenance, you won't see any adjustments to tax basis.