How are capital gains calculated? Where do I change capital gains assumptions such as cost basis and the percent of the return due to capital gains?
WealthTrace uses the First In First Out (FIFO) method along with the cost basis of an investment account. to determine if capital gains taxes are owed. FIFO means the program assumes the first shares bought are the first shares sold. This means all of the withdrawal in excess of the basis is considered taxable when it is sold. The cost basis declines by the amount of the withdrawal and then once the balance in an account reaches the basis level, the remaining value sold is no longer taxed.
Look at the first screenshot below. This shows the capital gains paid on investment withdrawals on taxable accounts. Capital gains are only taxed when realized, which means investment principal was withdrawn for expenses. The program takes into account the cost basis when calculating this. Look at the second screenshot below to see where the cost basis is located. The third screenshot below shows you how to view the projected cost basis by each investment account.
The percent of the return attributable to capital gains can be viewed and edited in the Asset Class Assumptions sections as you see in the third screenshot below. Any portion of the Annual Return not attributed to dividends or interest is assumed to be the portion of the annual return attributable to growth in the principal due to a price increase in the investment. This is the portion that can be taxed as capital gains when the gains are realized.