Cost Basis Method

Home Fairmark Forum Taxation of Investments Cost Basis Method

This topic contains 3 replies, has 2 voices, and was last updated by  kaneohe 4 months ago.

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  • #3298

    Hootz
    Participant

    I own a short-term Tax-exempt bond fund at Vanguard where I have noncovered and covered shares. On my noncovered shares, I have a small gain. On my covered shares, I have a small loss. On the noncovered shares, Vanguard has only Average Cost information.

    I assume that I can sell the covered shares Spec. ID and realize the loss. At a future date, can I then changed methods and sell the noncovered shares Average Cost? If not, I gather that I can instruct Vanguard to also sell the noncovered shares Spec. ID even though when reporting they will show the Average Cost.

    Alternatively, since the loss in my covered shares is not great, I could sell them Average Cost Basis method and do the same when I decide to sell my noncovered shares.

    Your thoughts would be appreciated.

    Hootz

    #3304

    kaneohe
    Participant

    Are you trying to sell all of the shares? If so, the net gain/loss should be independent of what method you use (tho there could be a variation is long/short term distribution).

    Have you selected a cost-basis method for your covered shares? Have you
    previously sold covered shares?

    I would check w/ VG to be sure but I would think since AVB is the default method for non-covered shares (and since VG is not reporting that info to IRS anyway), you could have different methods for covered and non-covered shares. You should check with them also about how you specify whether you are selling covered or non-covered shares. Sometimes the default is to sell non-covered shares first.

    #3306

    Hootz
    Participant

    Are you trying to sell all of the shares?

    No. Only the small loss on the covered shares.

    If so, the net gain/loss should be independent of what method you use (tho there could be a variation is long/short term distribution).

    Have you selected a cost-basis method for your covered shares?

    Yes. Spec. ID

    Have you previously sold covered shares?

    No.

    I would check w/ VG to be sure but I would think since AVB is the default method for non-covered shares (and since VG is not reporting that info to IRS anyway), you could have different methods for covered and non-covered shares.

    From Vanguard’s website:

    For shares purchased before January 1, 2012, and subsequently sold (known as noncovered shares), we’re only able to provide average cost information because we won’t know which cost basis method you used in the past or which tax lots remain in your account.

    #3307

    kaneohe
    Participant

    You selected specific ID for covered shares. You haven’t sold any shares so soecific ID should apply to all covered shares. Assuming you sell those specifc covered shares “properly” (however VG requires), you should only be left w/ your noncovered shares. How VG reports those noncovered shares does not matter since VG does not report noncovered basis to IRS.
    You could even use specific ID there (since you have never sold before)
    providing you follow the VG/IRS rules for specifying specific shares…
    specify in advance which shares, get written confirmation from VG in a timely manner, plus whatever else VG may require.

    Is there a specific concern?

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