Cost basis of non-covered shares

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bbrock
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Cost basis of non-covered shares

Post by bbrock »

Good morning,
I use specific id for my taxable brokerage acct which has only VTI and VXUS. Looking at VTI, I have mostly non-covered lots (non-covered: 21 lots; covered: 3 lots).

While I have a spreadsheet I maintain for the cost basis, I wanted to know can I merely report what Vanguard lists as the cost basis for these non-covered shares?

They show a cost for my non-covered lots ~$64/share. Looking at my spreadsheet for these non-covered lots of VTI, I bought some at approx. $29, $40, and others at $60/share. Can I just use and report Vanguard’s data for these non-covered shares?
bbrock
123
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Re: Cost basis of non-covered shares

Post by 123 »

The reporting the basis of non-covered shares is the responsibility of the investor based upon records the investor is required to maintain. Perhaps the number indicated by Vanguard is an average cost basis which is an informational value only for stocks and bonds. While an average cost basis can be used for mutual funds it cannot be used for stocks (including ETFs) and bonds.
Last edited by 123 on Mon Oct 03, 2022 12:34 pm, edited 1 time in total.
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lakpr
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Re: Cost basis of non-covered shares

Post by lakpr »

bbrock wrote: Mon Oct 03, 2022 12:13 pm Good morning,
I use specific id for my taxable brokerage acct which has only VTI and VXUS. Looking at VTI, I have mostly non-covered lots (non-covered: 21 lots; covered: 3 lots).

While I have a spreadsheet I maintain for the cost basis, I wanted to know can I merely report what Vanguard lists as the cost basis for these non-covered shares?

They show a cost for my non-covered lots ~$64/share. Looking at my spreadsheet for these non-covered lots of VTI, I bought some at approx. $29, $40, and others at $60/share. Can I just use and report Vanguard’s data for these non-covered shares?
I'd think it is not only preferable, but safer to use Vanguard's reported cost basis, as Vanguard would report that information to IRS. If you use a different cost basis, it might trigger questions from IRS.

For non-covered shares, my understanding is that it is Average Cost basis by default. Dividend reinvestments etc. may have caused that average price to be higher than what your spreadsheet indicates.
increment
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Re: Cost basis of non-covered shares

Post by increment »

Have you investigated whether Vanguard is giving you values using an average cost basis?

Do you really believe that Vanguard's reporting is correct and your spreadsheet is wrong? Getting the tax reporting right is your legal responsibility. Probably Vanguard keeps these numbers as a convenience for you but does not vouch for them.
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Re: Cost basis of non-covered shares

Post by jebmke »

lakpr wrote: Mon Oct 03, 2022 12:34 pm
bbrock wrote: Mon Oct 03, 2022 12:13 pm Good morning,
I use specific id for my taxable brokerage acct which has only VTI and VXUS. Looking at VTI, I have mostly non-covered lots (non-covered: 21 lots; covered: 3 lots).

While I have a spreadsheet I maintain for the cost basis, I wanted to know can I merely report what Vanguard lists as the cost basis for these non-covered shares?

They show a cost for my non-covered lots ~$64/share. Looking at my spreadsheet for these non-covered lots of VTI, I bought some at approx. $29, $40, and others at $60/share. Can I just use and report Vanguard’s data for these non-covered shares?
I'd think it is not only preferable, but safer to use Vanguard's reported cost basis, as Vanguard would report that information to IRS. If you use a different cost basis, it might trigger questions from IRS.

For non-covered shares, my understanding is that it is Average Cost basis by default. Dividend reinvestments etc. may have caused that average price to be higher than what your spreadsheet indicates.
Cost basis for non-covered shares is not reported to the IRS by brokers.

Further, Form 8949 has a specific column for adjusting a basis if there is a valid reason to do so. Entries in this field should not trigger an inquiry, normally. Even if they do, if one has proper documentation and the adjustment is in compliance with the guidelines outlined in IRS publications there should be no issue.
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celia
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Re: Cost basis of non-covered shares

Post by celia »

The problem with using your records instead of Vanguard’s is that you may have already sold some non-covered shares and used Vanguard’s “average” at that time. But if you’ve always used your own records (and can substantiate it with old records), you can continue doing that.

I would also “clean up” remaining non-covered shares (or hold them until you die) to make your reporting easier in the future, especially if you should become incapacitated. Your DPOA then would just have the tax preparer use what the custodian reports, which might not be correct. Without any records, the IRS will consider the sale price to be all gains (ie, cost basis is zero).
Last edited by celia on Mon Oct 03, 2022 12:46 pm, edited 1 time in total.
dagsboro
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Re: Cost basis of non-covered shares

Post by dagsboro »

Helpful and timely info on cost basis reporting. Thanks.
jebmke
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Re: Cost basis of non-covered shares

Post by jebmke »

celia wrote: Mon Oct 03, 2022 12:42 pm The problem with using your records instead of Vanguard’s is that you may have already sold some non-covered shares and used Vanguard’s “average” at that time. But if you’ve always used your own records (and can substantiate it with old records), you can continue doing that.

I would also “clean up” remaining non-covered shares (or hold them until you die) to make your reporting easier in the future, especially if you should become incapacitated. Your DPOA then would just have the tax preparer use what the custodian reports, which might not be correct. Without any records, the IRS will consider the sale price to be all gains (ie, cost basis is zero).
I should know this but I don't: is it possible to add cost basis info to VG for non-covered securities that may have been transferred there a long time ago with no basis info?

I periodically create a complete report of our basis which I stick in a notebook of information for my spouse in the event that I am no longer with us or incapacitated. For some items I have a report from my old Quicken files but it would be nice to have it all in one place.

wrt to clean up - one of the side benefits of tax loss harvesting is that one often gets a chance to consolidate lots. Our core holding of VG Total Stock Market is one giant lot created on March 16, 2009.
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Topic Author
bbrock
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Re: Cost basis of non-covered shares

Post by bbrock »

lakpr wrote: Mon Oct 03, 2022 12:34 pm
bbrock wrote: Mon Oct 03, 2022 12:13 pm Good morning,
I use specific id for my taxable brokerage acct which has only VTI and VXUS. Looking at VTI, I have mostly non-covered lots (non-covered: 21 lots; covered: 3 lots).

While I have a spreadsheet I maintain for the cost basis, I wanted to know can I merely report what Vanguard lists as the cost basis for these non-covered shares?

They show a cost for my non-covered lots ~$64/share. Looking at my spreadsheet for these non-covered lots of VTI, I bought some at approx. $29, $40, and others at $60/share. Can I just use and report Vanguard’s data for these non-covered shares?
I'd think it is not only preferable, but safer to use Vanguard's reported cost basis, as Vanguard would report that information to IRS. If you use a different cost basis, it might trigger questions from IRS.

For non-covered shares, my understanding is that it is Average Cost basis by default. Dividend reinvestments etc. may have caused that average price to be higher than what your spreadsheet indicates.
Thanks for responding.

For non-covered shares they are not reported to the IRS. Vanguard does not report the information for non-covered shares
bbrock
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bbrock
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Re: Cost basis of non-covered shares

Post by bbrock »

increment wrote: Mon Oct 03, 2022 12:36 pm Have you investigated whether Vanguard is giving you values using an average cost basis?

Do you really believe that Vanguard's reporting is correct and your spreadsheet is wrong? Getting the tax reporting right is your legal responsibility. Probably Vanguard keeps these numbers as a convenience for you but does not vouch for them.
No, I know my spreadsheet and info is correct. I was just merely asking if I could use theirs instead
bbrock
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bbrock
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Re: Cost basis of non-covered shares

Post by bbrock »

celia wrote: Mon Oct 03, 2022 12:42 pm The problem with using your records instead of Vanguard’s is that you may have already sold some non-covered shares and used Vanguard’s “average” at that time. But if you’ve always used your own records (and can substantiate it with old records), you can continue doing that.

I would also “clean up” remaining non-covered shares (or hold them until you die) to make your reporting easier in the future, especially if you should become incapacitated. Your DPOA then would just have the tax preparer use what the custodian reports, which might not be correct. Without any records, the IRS will consider the sale price to be all gains (ie, cost basis is zero).
Thank you Celia. But there are large unrealized gains in these non-covered shares.

I prefer not to give the IRS more taxes just to sell them to clean it up
bbrock
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bbrock
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Re: Cost basis of non-covered shares

Post by bbrock »

celia wrote: Mon Oct 03, 2022 12:42 pm The problem with using your records instead of Vanguard’s is that you may have already sold some non-covered shares and used Vanguard’s “average” at that time. But if you’ve always used your own records (and can substantiate it with old records), you can continue doing that.

I would also “clean up” remaining non-covered shares (or hold them until you die) to make your reporting easier in the future, especially if you should become incapacitated. Your DPOA then would just have the tax preparer use what the custodian reports, which might not be correct. Without any records, the IRS will consider the sale price to be all gains (ie, cost basis is zero).
And, I have used spec ID for a long time, even when I had mutual fund shares, and even when those shares were investor class not admiral. And my calculations were correct when I changed it on my spreadsheet to account for Admiral shares, and then when I went from mutual funds to ETF.

It’s actually Vanguard who’s messed up when I told them to gift a specific portion of a non-covered share lot. Instead of following my instructions they used FIFO. So that is where we have differences. Even with this difference, my spreadsheet is correct. Even though they used FIFO, they were still able to come to the same number as me, we’ve just taken two different paths. It’s annoying though as I’ve tried to have them correct it but they won’t.
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Re: Cost basis of non-covered shares

Post by FactualFran »

bbrock wrote: Mon Oct 03, 2022 1:50 pm It’s actually Vanguard who’s messed up when I told them to gift a specific portion of a non-covered share lot. Instead of following my instructions they used FIFO. So that is where we have differences. Even with this difference, my spreadsheet is correct. Even though they used FIFO, they were still able to come to the same number as me, we’ve just taken two different paths. It’s annoying though as I’ve tried to have them correct it but they won’t.
Because Vanguard is not officially concerned with the basis of non-covered shares, there was nothing for Vanguard to mess up.

The basis of non-covered shares is the responsibility of the shareholder, not Vanguard. However, if non-covered shares are sold using specific share identification, the IRS requires that 1) the shareholder inform Vanguard at the time of the sale what shares are being sold and 2) Vanguard responds in writing that they received the information from the shareholder. However, Vanguard does not need to do anything with the information.
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bbrock
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Re: Cost basis of non-covered shares

Post by bbrock »

FactualFran wrote: Mon Oct 03, 2022 2:13 pm
bbrock wrote: Mon Oct 03, 2022 1:50 pm It’s actually Vanguard who’s messed up when I told them to gift a specific portion of a non-covered share lot. Instead of following my instructions they used FIFO. So that is where we have differences. Even with this difference, my spreadsheet is correct. Even though they used FIFO, they were still able to come to the same number as me, we’ve just taken two different paths. It’s annoying though as I’ve tried to have them correct it but they won’t.
Because Vanguard is not officially concerned with the basis of non-covered shares, there was nothing for Vanguard to mess up.

The basis of non-covered shares is the responsibility of the shareholder, not Vanguard. However, if non-covered shares are sold using specific share identification, the IRS requires that 1) the shareholder inform Vanguard at the time of the sale what shares are being sold and 2) Vanguard responds in writing that they received the information from the shareholder. However, Vanguard does not need to do anything with the information.
Got it fractual fan. Yeah you made a good point. True there isn’t anything for them to mess up if they are non-covered. It is more of just an annoyance as I wish my Vanguard cost-basis screen would match my spreadsheet as far as which lot was gifted.

And then it sounds like from this thread is that I need to keep maintaining the spec ID spreadsheet calculations I have and not switch to some average that Vanguard is reporting for these non-covered lots.

This has given me a new area to address in case of my incapacitation... to make sure that my wife has access to this spreadsheet file so it could be provided to a CPA
Last edited by bbrock on Tue Oct 04, 2022 4:08 am, edited 2 times in total.
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Re: Cost basis of non-covered shares

Post by grabiner »

FactualFran wrote: Mon Oct 03, 2022 2:13 pm
bbrock wrote: Mon Oct 03, 2022 1:50 pm It’s actually Vanguard who’s messed up when I told them to gift a specific portion of a non-covered share lot. Instead of following my instructions they used FIFO. So that is where we have differences. Even with this difference, my spreadsheet is correct. Even though they used FIFO, they were still able to come to the same number as me, we’ve just taken two different paths. It’s annoying though as I’ve tried to have them correct it but they won’t.
Because Vanguard is not officially concerned with the basis of non-covered shares, there was nothing for Vanguard to mess up.

The basis of non-covered shares is the responsibility of the shareholder, not Vanguard. However, if non-covered shares are sold using specific share identification, the IRS requires that 1) the shareholder inform Vanguard at the time of the sale what shares are being sold and 2) Vanguard responds in writing that they received the information from the shareholder. However, Vanguard does not need to do anything with the information.
And if you have done that in the past, then Vanguard's reported basis will be wrong on any future sales of the non-covered shares. If you bought some shares for $20 and some shares for $40, Vanguard will record an average basis of $30. If you sold the $40 shares in a previous year, then your own sale in the future must be the $20 shares.
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bbrock
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Re: Cost basis of non-covered shares

Post by bbrock »

Thanks grabiner for your reply.
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single2019
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Re: Cost basis of non-covered shares

Post by single2019 »

I have mutual funds that have a combination of covered and non covered shares. Vanguard provides me info for average cost of the shares, separately for covered and non-covered. I have not sold any of the shares. I selected Specific ID after MF account was converted to Brokerage.

What cost basis would they show if I convert MF to ETF? My MFs do have equivalent ETFs.

Thanks
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bbrock
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Re: Cost basis of non-covered shares

Post by bbrock »

"What cost basis would they show if I convert MF to ETF? My MFs do have equivalent ETFs."

If you chose Spec ID as your cost basis method on your brokerage acct., then that stays as your selection even after you convert to ETF. If your MF don't have ETF equivalents, then it is not even something to be of concern.

If you selected Spec ID for non-covered shares, you will have to maintain that and determine the each lot info (purchase date, price/share, # of shares, total purchase).
bbrock
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