Long term capital gains and monthly contributions?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
ralphboy
Posts: 273
Joined: Thu Apr 23, 2020 7:09 pm

Long term capital gains and monthly contributions?

Post by ralphboy »

I understand that if you buy a stock and then sell it a year + a day later, it is long term. However, what if you buy a stock and have it for a year + a day and then buy the same stock on a monthly basis and sell it? If you sell the number of shares that you had for a year + a day are those considered the long term and if you sell shares greater than that number that you had for a year, are those considered short term? Confused about it.
jmch1990
Posts: 72
Joined: Wed Dec 23, 2020 8:45 pm

Re: Long term capital gains and monthly contributions?

Post by jmch1990 »

ralphboy wrote: Tue Sep 21, 2021 8:02 am I understand that if you buy a stock and then sell it a year + a day later, it is long term. However, what if you buy a stock and have it for a year + a day and then buy the same stock on a monthly basis and sell it? If you sell the number of shares that you had for a year + a day are those considered the long term and if you sell shares greater than that number that you had for a year, are those considered short term? Confused about it.
Essentially, yes. Your brokerage keeps track of the stocks or fractional shares that you buy, and on what day that you bought them. Regardless of if you have existing shares in a mutual fund or company or whatever, the day you bought them is when the clock starts.
So if you bought 100 shares of Apple 1 year + 1 day ago, and bought 50 shares of Apple yesterday, you'd have 100 long-term shares and 50 short-term shares. A year from now, they would all be long term.
livesoft
Posts: 86076
Joined: Thu Mar 01, 2007 7:00 pm

Re: Long term capital gains and monthly contributions?

Post by livesoft »

It depends on which shares you identify for selling. If you tell your broker to sell your most recent shares held for less than a year, then those are not long-term, but are short-term. If you tell your broker to sell your oldest shares held for more than a year, then those are long-term. If you sell a mix of long-term and short-term shares, then you have sold a mix: some long-term and some short-term.

If you or your broker fail to identify the shares sold when they are sold and before the trade settles, then the IRS considers that you have sold the oldest shares that you owned when you made the transaction. This is sometimes called First-In, First-out or FIFO. You can also specifically identify the first shares in to be the shares you sold. This is also called FIFO.

Consult your brokerage platform instructions on "Cost Basis Method" and "Specific Identification."
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Long term capital gains and monthly contributions?

Post by retiredjg »

ralphboy wrote: Tue Sep 21, 2021 8:02 am I understand that if you buy a stock and then sell it a year + a day later, it is long term.
These short and long term capital gains or losses only apply in a taxable account (an account that is not an IRA, 401k, etc). There is no reason or need to keep up with this in a tax-advantaged account like an IRA or a 401k.
User avatar
Topic Author
ralphboy
Posts: 273
Joined: Thu Apr 23, 2020 7:09 pm

Re: Long term capital gains and monthly contributions?

Post by ralphboy »

livesoft wrote: Tue Sep 21, 2021 8:28 am It depends on which shares you identify for selling. If you tell your broker to sell your most recent shares held for less than a year, then those are not long-term, but are short-term. If you tell your broker to sell your oldest shares held for more than a year, then those are long-term. If you sell a mix of long-term and short-term shares, then you have sold a mix: some long-term and some short-term.

If you or your broker fail to identify the shares sold when they are sold and before the trade settles, then the IRS considers that you have sold the oldest shares that you owned when you made the transaction. This is sometimes called First-In, First-out or FIFO. You can also specifically identify the first shares in to be the shares you sold. This is also called FIFO.

Consult your brokerage platform instructions on "Cost Basis Method" and "Specific Identification."
I'm glad you mentioned that because I was wondering how they would know to sell the old or new shares. If I'm selling shares from my brokerage account to fund my IRA with fidelity, I guess I'll see the FIFO option?
placeholder
Posts: 8421
Joined: Tue Aug 06, 2013 12:43 pm

Re: Long term capital gains and monthly contributions?

Post by placeholder »

ralphboy wrote: Tue Sep 21, 2021 6:51 pm I'm glad you mentioned that because I was wondering how they would know to sell the old or new shares. If I'm selling shares from my brokerage account to fund my IRA with fidelity, I guess I'll see the FIFO option?
The reason why you're selling isn't particularly important and what most people do is try to minimize taxes although some are selling because they have 0% ltcg space so just want to realize a certain dollar amount of gains.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Long term capital gains and monthly contributions?

Post by retiredjg »

ralphboy wrote: Tue Sep 21, 2021 6:51 pm I'm glad you mentioned that because I was wondering how they would know to sell the old or new shares. If I'm selling shares from my brokerage account to fund my IRA with fidelity, I guess I'll see the FIFO option?
Or you might want to choose specific identification of shares. That way, you pick which shares you want to sell.
Post Reply