Cost Basis for mutual fund sale of covered shares

Home Fairmark Forum Taxation of Investments Cost Basis for mutual fund sale of covered shares

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  • #1461
    kaneohe
    Participant

    Suppose you buy the fund with purchases starting in 2014. In April 2015 you sell some , but not all, shares. You continue purchases in 2015
    continuing thru today. There were no other shares sold.

    The sale in April 2015 was sold using average cost basis. In Jan 2018 you switched to specific lot ID. Does the change in basis apply only to shares purchased after that date or could it apply to shares purchase since the last sale.

    #1464
    Kaye Thomas
    Moderator

    The regs say that when you change from the average basis method, the basis of each share immediately after the change is the same as the basis immediately before the change. In other words, the change affects shares you acquire after the change, but does not affect shares you acquired before the change.

    #1466
    kaneohe
    Participant

    Thanks, Kaye. I thought I remembered seeing somewhere that if you had never sold anything, you could have changed from AVB to specific shares
    and affected all of your shares. Did I misunderstand, or was there an incorrect myth in the early days of the basis change rules, or was this correct but you had to satisfy the “never sold anything” part? Or do
    fund companies have some discretion?

    #1476
    Kaye Thomas
    Moderator

    These rules allow you to “revoke” an election to use the averaging method, or “change from” the averaging method. Once you’ve made a sale under the averaging method, you can no longer revoke it with retroactive effect. (There are other limitations on revoking as well.)

    #1477
    kaneohe
    Participant

    ok, got it. Thanks,Kaye.

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