Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
Application of FIFO rule between brokerages
Posted by: chips, December 8, 2017 07:20PM
If I have elected to use the FIFO rule, and hold shares of the same stock held at two different brokerages can I apply the FIFO rule separately at each brokerage?

An example would be:

Bought 100 shares of company XYZ at brokerage A in 2012

Bought 100 Shares of same company XYZ at brokerage B in 2016

Sold the 100 shares of company XYZ at brokerage B in 2017

Must I use the cost of the shares bought in brokerage A as the basis for the shares sold at brokerage B? Or can I use the basis of the Shares in Brokerage B for this transaction?

Re: Application of FIFO rule between brokerages
Posted by: wpatch, December 9, 2017 04:00PM
Under current law you are limited to the cost basis of the shares that pass through the selling brokerage account. The regulations that will apply to the super FIFO of the Senate Bill have not been written, but I suspect they will circumvent this loophole.

Re: Application of FIFO rule between brokerages
Posted by: chips, December 9, 2017 05:21PM
Thanks wpatch, so just in case the change does survive, I think I might sell (or transfer) any duplicate shares at one of the brokerages before the end of the year. It sounds like sort of an accounting nightmare what they are proposing.

By the way, I had an error in last line of the original post, the brokerage should have been "B", not "A". But looks like you understood it correctly. Thanks again.

Re: Application of FIFO rule between brokerages
Posted by: Kaye Thomas, December 24, 2017 03:32AM
As you may have seen, the proposal to do away with share identification did not become law. These rules remain unchanged. Each account is treated separately.

Kaye Thomas
Fairmark.com

Re: Application of FIFO rule between brokerages
Posted by: 47Percent, January 30, 2018 03:26AM


I know this Super-FIFO didn't make the cut in the final bill.

But, just out of curiosity, what exactly was the problem this fix was trying to solve?

Re: Application of FIFO rule between brokerages
Posted by: Kaye Thomas, February 4, 2018 11:58AM
There's a mistaken notion that taxpayers gain an unfair advantage when they're able to identify shares when selling stock. I've railed against this notion, to the point of publishing an article on it in the Journal of Investment Taxation. The idea persists, however, among people who haven't thought it through carefully.

They are looking at the issue from the standpoint of the moment of sale. They see that that there is a tax advantage in being able to choose which shares to sell -- a tax advantage that can be gained without any corresponding economic reality because shares are fungible. To them it seems like taxpayers are getting away with something.

To see why taxpayers should be allowed to identify shares, look at the point of purchase instead of the point of sale. Anyone holding appreciated shares in a particular stock would be at a disadvantage in buying additional shares of the same stock if he isn't allowed to identify shares in a subsequent sale. It would be a real mess to have a situation where tax considerations influenced buying decisions of investors.

We have plenty of other situations where taxpayers can choose among different tax consequences without altering their economic behavior (making an S election, for example, or choosing between a Roth and a traditional IRA). Allowing taxpayers to identify shares is at least as well justified as these others.

Kaye Thomas
Fairmark.com



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