Cost basis question

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Topic Author
Basel Hodge
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Cost basis question

Post by Basel Hodge »

I am buying a second home and need to sell some stock to cover payment. I've been a good saver over the years but have seldom sold any stocks or mutual funds. I'm looking for suggestions on any tax related issues I should consider such as cost basis. The account I'll be selling from is a non taxed advantaged brokerage account at Vanguard and has about 87% VTSAX, and 13% VTIAX.

I have little in the way of choice regarding what to sell. I guess I will just keep the same ratio of each fund. Candidly, the information I'm about to share, I do not fully understand. Looking at Accounts/Cost basis/Unrealized gains or losses I note cost basis listed as "Average Cost" for both funds. I also note under details that both funds are "covered shares".

Looking at Accounts/Cost basis/Realized gains or losses I see "For the selected period, you have no realized gains or losses in this account." I do not believe we have ever had realized gains from this account.

For my situation I will be selling about 14% of the shares. I do not wish to pay more tax than necessary, however, I also would prioritize the ease of keeping track of this transaction for tax purposes. Perhaps the questions have illustrated the desire for keeping things simple.
I appreciate any comments or guidance.
toddthebod
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Re: Cost basis question

Post by toddthebod »

Basel Hodge wrote: Sun Mar 26, 2023 12:02 pm I am buying a second home and need to sell some stock to cover payment. I've been a good saver over the years but have seldom sold any stocks or mutual funds. I'm looking for suggestions on any tax related issues I should consider such as cost basis. The account I'll be selling from is a non taxed advantaged brokerage account at Vanguard and has about 87% VTSAX, and 13% VTIAX.

I have little in the way of choice regarding what to sell. I guess I will just keep the same ratio of each fund. Candidly, the information I'm about to share, I do not fully understand. Looking at Accounts/Cost basis/Unrealized gains or losses I note cost basis listed as "Average Cost" for both funds. I also note under details that both funds are "covered shares".

Looking at Accounts/Cost basis/Realized gains or losses I see "For the selected period, you have no realized gains or losses in this account." I do not believe we have ever had realized gains from this account.

For my situation I will be selling about 14% of the shares. I do not wish to pay more tax than necessary, however, I also would prioritize the ease of keeping track of this transaction for tax purposes. Perhaps the questions have illustrated the desire for keeping things simple.
I appreciate any comments or guidance.
I don't know how to do this at Vanguard specifically, but to minimize your tax bill today, you would want, before you sell, to switch your cost basis method to Specific ID or Specific Lots. It should be easy enough to do, and then just wait a few days. Then, you can sell the lots with the highest basis in order to minimize your capital gains taxes this year. It's important that you do this before you sell anything, because once you sell, you will lock in all existing shares to using average cost basis.
twh
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Re: Cost basis question

Post by twh »

Basel Hodge wrote: Sun Mar 26, 2023 12:02 pm I am buying a second home and need to sell some stock to cover payment. I've been a good saver over the years but have seldom sold any stocks or mutual funds. I'm looking for suggestions on any tax related issues I should consider such as cost basis. The account I'll be selling from is a non taxed advantaged brokerage account at Vanguard and has about 87% VTSAX, and 13% VTIAX.

I have little in the way of choice regarding what to sell. I guess I will just keep the same ratio of each fund. Candidly, the information I'm about to share, I do not fully understand. Looking at Accounts/Cost basis/Unrealized gains or losses I note cost basis listed as "Average Cost" for both funds. I also note under details that both funds are "covered shares".

Looking at Accounts/Cost basis/Realized gains or losses I see "For the selected period, you have no realized gains or losses in this account." I do not believe we have ever had realized gains from this account.

For my situation I will be selling about 14% of the shares. I do not wish to pay more tax than necessary, however, I also would prioritize the ease of keeping track of this transaction for tax purposes. Perhaps the questions have illustrated the desire for keeping things simple.
I appreciate any comments or guidance.
The brokerages have several options for tracking basis. You can choose which one is best. Many default to "average cost". There will be some other options, for example, "first in, first out". Personally, I only want to use "specific share identification". This method lets you see the exact cost basis of each lot of stock/mutual-fund. Each "lot" is a purchase you made or was made by dividend reinvestment or came to you in some other way, inheritance, for example. You should be able to choose using this cost basis tracking method someplace on the website. You may need to call them. Once you choose this method, you should be able to see all the tax lots and some may be more advantageous to sell depending on your goal, which in this case, is to minimize gains. Then, when you sell, the trade screens will allow you to pick and choose which tax lots you make up your trade from.
Topic Author
Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

It seems like the "specific share identification" provides the most control over tax implications. If I choose to use that as my cost basis at Vanguard can I change it at some later date for another cost basis with additional sale of shares?

Is there a mechanism built into the system with Vanguard online to see what those specific shares would be and their loss or gain effect as of any sale? I wish I could see this in action on Vanguard. It is probably more simple once you have done it successfully a few times but seems confusing to me. I guess I am concerned about what I might have to keep track of myself for tax evidence/reporting.
Longdog
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Re: Cost basis question

Post by Longdog »

Basel Hodge wrote: Sun Mar 26, 2023 5:18 pm Is there a mechanism built into the system with Vanguard online to see what those specific shares would be and their loss or gain effect as of any sale? I wish I could see this in action on Vanguard. It is probably more simple once you have done it successfully a few times but seems confusing to me. I guess I am concerned about what I might have to keep track of myself for tax evidence/reporting.
Yes, once you’ve changed to Specific Share Identification (if not already), there will be a cost basis tab that shows each lot, and the current gain or loss based on the most recent price.
Steve
twh
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Re: Cost basis question

Post by twh »

Basel Hodge wrote: Sun Mar 26, 2023 5:18 pm It seems like the "specific share identification" provides the most control over tax implications. If I choose to use that as my cost basis at Vanguard can I change it at some later date for another cost basis with additional sale of shares?

Is there a mechanism built into the system with Vanguard online to see what those specific shares would be and their loss or gain effect as of any sale? I wish I could see this in action on Vanguard. It is probably more simple once you have done it successfully a few times but seems confusing to me. I guess I am concerned about what I might have to keep track of myself for tax evidence/reporting.
You will never want to use anything else. You can always use specific identification to create your own "average". You don't need to keep track, the brokerage is keeping track of it all for each lot. In the case where your positions are very very old (pre-2011), there may not be cost basis data loaded since the requirement for the brokerage to track the basis has only been in place since 2011. But, in that case, you can find the basis yourself and load that into each lot and then the brokerage will use that going forward.
Topic Author
Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

First thank you all for your thoughts and guidance.

Is my understanding correct that funds held in tIRA or Roth IRA is not subject to the same sets of cost basis choice upon selling as those held outside tax advantaged accounts? (I guess I should stipulate the question assumes the tIRA has only had 'deductible' contributions.)
toddthebod
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Re: Cost basis question

Post by toddthebod »

Basel Hodge wrote: Mon Mar 27, 2023 9:24 am First thank you all for your thoughts and guidance.

Is my understanding correct that funds held in tIRA or Roth IRA is not subject to the same sets of cost basis choice upon selling as those held outside tax advantaged accounts? (I guess I should stipulate the question assumes the tIRA has only had 'deductible' contributions.)
There are never capital gains taxes on funds held in those accounts, so there's no basis. It doesn't matter if the contributions are non-deductible either. Whenever the IRS cares about gains and losses in a traditional IRA with basis, the calculations are based on changes in the value of the entire account, not any specific investment.
Topic Author
Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

The more I did into this the more questions arise.
1. Once I select a cost basis on a specific account do I need to sell future funds in that account with that same cost basis?
2. If I convert stock from an IRA to a Roth is there a cost basis I should consider?
3. What about selling the stock in the Roth account and taking cash? Any cost basis consideration?

Thanks again!
brawlrats
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Re: Cost basis question

Post by brawlrats »

Basel Hodge wrote: Mon Mar 27, 2023 1:26 pm The more I did into this the more questions arise.
1. Once I select a cost basis on a specific account do I need to sell future funds in that account with that same cost basis?
2. If I convert stock from an IRA to a Roth is there a cost basis I should consider?
3. What about selling the stock in the Roth account and taking cash? Any cost basis consideration?

Thanks again!
Cost basis in IRAs means nothing...both questions 2 and 3 have no answer because gains and losses don't matter in IRAs

As for #1, use specific ID and stick with it. It always gives you the most control and Vanguard does all of the recordkeeping for you.
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arcticpineapplecorp.
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Re: Cost basis question

Post by arcticpineapplecorp. »

Basel Hodge wrote: Mon Mar 27, 2023 1:26 pm The more I did into this the more questions arise.
1. Once I select a cost basis on a specific account do I need to sell future funds in that account with that same cost basis?
2. If I convert stock from an IRA to a Roth is there a cost basis I should consider?
3. What about selling the stock in the Roth account and taking cash? Any cost basis consideration?

Thanks again!
1. probably. why would you want to change that when SpecID gives you the greatest control regarding tax implications?
2. If you convert from IRA to Roth you will pay taxes at ordinary income rates on the amount of the conversion. Cost basis isn't relevant in an IRA/Roth IRA (usually). It's more relevant in a taxable account since the cost basis is used to determine if you have a gain or loss and if so, how much.
3. if you are: 1. taking an amount from Roth that is equal or less than your contributions, you have no tax impact because you are able to take your contributions from Roth at any time.

there are other considerations when taking earnings on contributions from a Roth IRA if you're under 59.5 and/or have had the account for less than 5 years:

Image

source: https://www.bogleheads.org/wiki/Roth_IRA#Notes
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toddthebod
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Re: Cost basis question

Post by toddthebod »

Basel Hodge wrote: Mon Mar 27, 2023 1:26 pm The more I did into this the more questions arise.
1. Once I select a cost basis on a specific account do I need to sell future funds in that account with that same cost basis?
In reality there's only two choices that matter: average cost or specific lots. All the others (e.g. FIFO) are just specific lots where they pick which lots to sell for you. You can switch between all the different forms except for average cost at will. You can also switch back to average cost in the future. However, once you sell something using average cost, all existing lots of that stock or fund in that account are locked into average cost. Any future lots you purchase can still be switched back to specific lots.
rkhusky
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Re: Cost basis question

Post by rkhusky »

There are only two cost basis methods for mutual funds: actual cost and average cost. Actual cost is what you actually paid for the shares and average cost is the average price for all shares purchased.

The other terms, like FIFO, LIFO, HIFO, SpecID, are share selection methods. With SpecID, you choose the shares. FIFO sells the earliest shares first, HIFO sells the highest cost first, etc. There are even more methods that take long term and short term holdings into account.

Average cost and FIFO are usually paired together.
placeholder
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Re: Cost basis question

Post by placeholder »

In traditional iras the only basis concept is that of aftertax money that won't be taxed again.
Topic Author
Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

The next level of this line of inquiry now presents itself. As I mentioned above, this is my first time selling any substantial shares of anything. I can now see the lots of share displayed at Vanguard. I can see the lots that will be a loss when sold. That amount will be a small portion of what I need to sell. The question, how do I determine what the best lots are to sell assuming the next lots all show a gain. Is it just as simple as selling the lots that show the least % gain? My understanding is that long term capital gain is taxed at a lower rate than short term.
twh
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Re: Cost basis question

Post by twh »

Basel Hodge wrote: Tue Mar 28, 2023 7:55 am The next level of this line of inquiry now presents itself. As I mentioned above, this is my first time selling any substantial shares of anything. I can now see the lots of share displayed at Vanguard. I can see the lots that will be a loss when sold. That amount will be a small portion of what I need to sell. The question, how do I determine what the best lots are to sell assuming the next lots all show a gain. Is it just as simple as selling the lots that show the least % gain? My understanding is that long term capital gain is taxed at a lower rate than short term.
Yes, LTCG is taxed more favorably than STCG (which is taxed at ordinary income rates).

This is a complex topic and has so so many considerations. When selling, you decide what you want to do based on your specific situation. One thing to not forget is you can only have a net capital loss of $3,000 and the rest of that loss is carried forward to next tax year. Unless there are other factors governing your selling, like this stock is bad, having a huge capital loss and not being able to offset that loss with selling some gains isn't so useful, because you only get to deduct $3,000 from you income in any tax year -- the balance of the loss must be carried forward. Now, don't get me wrong, this shouldn't prevent you from selling a bad asset and getting out.

Your case is probably simpler...if you have 20 lots of some stock and you need half the market value of that entire position, I'd pick lots that get me to as close to a zero gain as possible. If that means choosing all the lots that are a loss and all the lots with the lowest gain, then just do that. Now, say you are out of work for half this year and your income will be low, maybe choosing the highest gain lots makes more sense because you will be in a lower tax bracket.
toddthebod
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Re: Cost basis question

Post by toddthebod »

Basel Hodge wrote: Tue Mar 28, 2023 7:55 am The next level of this line of inquiry now presents itself. As I mentioned above, this is my first time selling any substantial shares of anything. I can now see the lots of share displayed at Vanguard. I can see the lots that will be a loss when sold. That amount will be a small portion of what I need to sell. The question, how do I determine what the best lots are to sell assuming the next lots all show a gain. Is it just as simple as selling the lots that show the least % gain? My understanding is that long term capital gain is taxed at a lower rate than short term.
1. Sell everything that has lost value.
2. Do not sell anything you've held for less than a year.
3. Sell shares that you have held at least a year in order from lowest gain to highest until you've got enough money.
Topic Author
Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

Thank you all above respondents for sharing your wisdom.

I hope this is my last question (no promise) related to this topic. This is to just be certain I don't get caught in a wash sale. I'm asking to check my understanding. If I sell shares on a given day for a capital loss, I need to avoid repurchasing shares of the same funds for 30 days. I hope I have that right. In addition, my concern relates to the fact that my dividends are reinvested. The fund family shares I will be selling are VTIAX & VTSAX. My searching reveals the following data related to 2023 dividend payments:

Total International Stock Index Admiral Shares 921909818 VTIAX
Record • Reinvest or Ex • Payable date
3/16/23 • 3/17/23 • 3/20/23
6/15/23 • 6/16/23 • 6/20/23
9/14/23 • 9/15/23 • 9/18/23
12/14/23 • 12/15/23 • 12/18/23

Total Stock Market Index Admiral Shares 922908728 VTSAX
Record • Reinvest or Ex • Payable date
3/21/23 • 3/22/23 • 3/23/23
6/21/23 • 6/22/23 • 6/23/23
9/19/23 • 9/20/23 • 9/21/23
12/19/23 • 12/20/23 • 12/21/23

If I understand correctly, If I make the sale tomorrow (3/29/23) I should be well within the time frame free from getting a wash sale from dividend reinvestment. DO i have this right? Thx again!

*Sorry chart is not more clear
Last edited by Basel Hodge on Tue Mar 28, 2023 7:11 pm, edited 4 times in total.
increment
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Re: Cost basis question

Post by increment »

Basel Hodge wrote: Tue Mar 28, 2023 2:37 pm If I sell shares on a given day for a capital loss, I need to avoid repurchasing shares of the same funds for 30 days. I hope I have that right. In addition, my concern relates to the fact that my dividends are reinvested.

[...]

If I understand correctly, If I make the sale tomorrow (3/29/23) I should I should be well within the time frame free from getting a wash sale from dividend reinvestment. DO i have this right?
No. It's not "avoid repurchasing for 30 days"; it's "avoid repurchasing within 30 days." If you don't want to have a wash sale, you have to wait until late April, because you purchased (through reinvestment) a week or two ago. (Wash sales are not against the law, however.)
HeelaMonster
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Re: Cost basis question

Post by HeelaMonster »

increment wrote: Tue Mar 28, 2023 2:41 pm
Basel Hodge wrote: Tue Mar 28, 2023 2:37 pm If I sell shares on a given day for a capital loss, I need to avoid repurchasing shares of the same funds for 30 days. I hope I have that right. In addition, my concern relates to the fact that my dividends are reinvested.

[...]

If I understand correctly, If I make the sale tomorrow (3/29/23) I should I should be well within the time frame free from getting a wash sale from dividend reinvestment. DO i have this right?
No. It's not "avoid repurchasing for 30 days"; it's "avoid repurchasing within 30 days." If you don't want to have a wash sale, you have to wait until late April, because you purchased (through reinvestment) a week or two ago. (Wash sales are not against the law, however.)
Yep. And just to be even more explicit, the extended phrase might be "avoid repurchasing within 30 days BEFORE or AFTER the sale."

OP, if you haven't already, check out the WIKI article on wash sales. In particular, scroll down to "How to avoid wash sales... 30-day limit."

https://www.bogleheads.org/wiki/Wash_sale
Topic Author
Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

HeelaMonster wrote: Tue Mar 28, 2023 5:17 pm
increment wrote: Tue Mar 28, 2023 2:41 pm
Basel Hodge wrote: Tue Mar 28, 2023 2:37 pm If I sell shares on a given day for a capital loss, I need to avoid repurchasing shares of the same funds for 30 days. I hope I have that right. In addition, my concern relates to the fact that my dividends are reinvested.

[...]

If I understand correctly, If I make the sale tomorrow (3/29/23) I should I should be well within the time frame free from getting a wash sale from dividend reinvestment. DO i have this right?
No. It's not "avoid repurchasing for 30 days"; it's "avoid repurchasing within 30 days." If you don't want to have a wash sale, you have to wait until late April, because you purchased (through reinvestment) a week or two ago. (Wash sales are not against the law, however.)
Yep. And just to be even more explicit, the extended phrase might be "avoid repurchasing within 30 days BEFORE or AFTER the sale."

OP, if you haven't already, check out the WIKI article on wash sales. In particular, scroll down to "How to avoid wash sales... 30-day limit."

https://www.bogleheads.org/wiki/Wash_sale
So I had dividend reinvestment's made on 3/17/23 and 3/22/2023 for the two funds I wish to sell. Does this mean selling shares tomorrow of the same two funds (some with a capital loss some with a gain) will create a wash sale?? This is confusing. If so, at what point can I sell without a wash sale?
toddthebod
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Re: Cost basis question

Post by toddthebod »

Basel Hodge wrote: Tue Mar 28, 2023 6:44 pm
HeelaMonster wrote: Tue Mar 28, 2023 5:17 pm
increment wrote: Tue Mar 28, 2023 2:41 pm
Basel Hodge wrote: Tue Mar 28, 2023 2:37 pm If I sell shares on a given day for a capital loss, I need to avoid repurchasing shares of the same funds for 30 days. I hope I have that right. In addition, my concern relates to the fact that my dividends are reinvested.

[...]

If I understand correctly, If I make the sale tomorrow (3/29/23) I should I should be well within the time frame free from getting a wash sale from dividend reinvestment. DO i have this right?
No. It's not "avoid repurchasing for 30 days"; it's "avoid repurchasing within 30 days." If you don't want to have a wash sale, you have to wait until late April, because you purchased (through reinvestment) a week or two ago. (Wash sales are not against the law, however.)
Yep. And just to be even more explicit, the extended phrase might be "avoid repurchasing within 30 days BEFORE or AFTER the sale."

OP, if you haven't already, check out the WIKI article on wash sales. In particular, scroll down to "How to avoid wash sales... 30-day limit."

https://www.bogleheads.org/wiki/Wash_sale
So I had dividend reinvestment's made on 3/17/23 and 3/22/2023 for the two funds I wish to sell. Does this mean selling shares tomorrow of the same two funds (some with a capital loss some with a gain) will create a wash sale?? This is confusing. If so, at what point can I sell without a wash sale?
Yes. But depending on how much the dividends were and how much you are selling, it could be inconsequential. April 24 would be the first day you can sell without a wash sale.
Topic Author
Basel Hodge
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Joined: Fri Apr 12, 2019 6:19 pm

Re: Cost basis question

Post by Basel Hodge »

toddthebod wrote: Tue Mar 28, 2023 7:00 pm
Basel Hodge wrote: Tue Mar 28, 2023 6:44 pm
HeelaMonster wrote: Tue Mar 28, 2023 5:17 pm
increment wrote: Tue Mar 28, 2023 2:41 pm
Basel Hodge wrote: Tue Mar 28, 2023 2:37 pm If I sell shares on a given day for a capital loss, I need to avoid repurchasing shares of the same funds for 30 days. I hope I have that right. In addition, my concern relates to the fact that my dividends are reinvested.

[...]

If I understand correctly, If I make the sale tomorrow (3/29/23) I should I should be well within the time frame free from getting a wash sale from dividend reinvestment. DO i have this right?
No. It's not "avoid repurchasing for 30 days"; it's "avoid repurchasing within 30 days." If you don't want to have a wash sale, you have to wait until late April, because you purchased (through reinvestment) a week or two ago. (Wash sales are not against the law, however.)
Yep. And just to be even more explicit, the extended phrase might be "avoid repurchasing within 30 days BEFORE or AFTER the sale."

OP, if you haven't already, check out the WIKI article on wash sales. In particular, scroll down to "How to avoid wash sales... 30-day limit."

https://www.bogleheads.org/wiki/Wash_sale
So I had dividend reinvestment's made on 3/17/23 and 3/22/2023 for the two funds I wish to sell. Does this mean selling shares tomorrow of the same two funds (some with a capital loss some with a gain) will create a wash sale?? This is confusing. If so, at what point can I sell without a wash sale?
Yes. But depending on how much the dividends were and how much you are selling, it could be inconsequential. April 24 would be the first day you can sell without a wash sale.
It may not matter because I need to sell these shares to pay for the new home, but I would like to understand the consequence better. Here is more detail. I had a dividend paid on VTSAX of $3491 on 3/22/23 and a dividend on VTIAX of $286 on 3/17/23. When I look at the specific lots cost basis to determine which I will sell there are only a few I could sell at a LTC loss. For VTSAX I have losses totaling -$1862 (all occurring between 3/24/21 and 3/22/2022). For VTIAX I have losses totaling -$921 (all ocurring between 12/20/2019 and 3/18/2022). The total amount of funds I need to sell is about $145,000. The question...

Since selling those shares that took a loss will trigger a wash sale, should I refrain from selling those 'loss' shares now and wait to sell them some future time in order to avoid the wash? In effect potentially using them as a loss in the future. As I think about this. Isn't it reasonable to sell the shares I need all with LTC gains to generate the $145,000 in cash I need, and then after April 24th arrives sell the shares that show a loss I mentioned above and then take the loss that way as a small balance against the larger gains in the original transaction?

I can not wait until April 24th because of closing.

I appreciate the input and guidance.

*I edited this to reduce the number of questions and simplify into one question. Thank you.
Last edited by Basel Hodge on Wed Mar 29, 2023 11:08 am, edited 2 times in total.
twh
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Re: Cost basis question

Post by twh »

Basel Hodge wrote: Wed Mar 29, 2023 7:57 am
toddthebod wrote: Tue Mar 28, 2023 7:00 pm
Basel Hodge wrote: Tue Mar 28, 2023 6:44 pm
HeelaMonster wrote: Tue Mar 28, 2023 5:17 pm
increment wrote: Tue Mar 28, 2023 2:41 pm

No. It's not "avoid repurchasing for 30 days"; it's "avoid repurchasing within 30 days." If you don't want to have a wash sale, you have to wait until late April, because you purchased (through reinvestment) a week or two ago. (Wash sales are not against the law, however.)
Yep. And just to be even more explicit, the extended phrase might be "avoid repurchasing within 30 days BEFORE or AFTER the sale."

OP, if you haven't already, check out the WIKI article on wash sales. In particular, scroll down to "How to avoid wash sales... 30-day limit."

https://www.bogleheads.org/wiki/Wash_sale
So I had dividend reinvestment's made on 3/17/23 and 3/22/2023 for the two funds I wish to sell. Does this mean selling shares tomorrow of the same two funds (some with a capital loss some with a gain) will create a wash sale?? This is confusing. If so, at what point can I sell without a wash sale?
Yes. But depending on how much the dividends were and how much you are selling, it could be inconsequential. April 24 would be the first day you can sell without a wash sale.
It may not matter because I need to sell these shares to pay for the new home, but I would like to understand the consequence better. Here is more detail. I had a dividend paid on VTSAX of $3491 on 3/22/23 and a dividend on VTIAX of $286 on 3/17/23. When I look at the specific lots cost basis to determine which I will sell there are only a few I could sell at a LTC loss. For VTSAX I have losses totaling -$1862 (all occurring between 3/24/21 and 3/22/2022). For VTIAX I have losses totaling -$921 (all ocurring between 12/20/2019 and 3/18/2022). The total amount of funds I need to sell is about $145,000. The questions.

1. What is the impact knowing the dividend will trigger a wash sale when I sell.
2. Does this scenario describe a somewhat inconsequential wash sale?
3. Do the numbers indicate the entire amount of the 'loss' will be in effect wiped out by the wash?
4. Since selling those shares that took a loss will trigger a wash sale, should I refrain from selling those 'loss' shares now and wait to sell them some future time in order to avoid the wash? In effect potentially using them as a loss in the future.

I can not wait until April 24th because of closing.

I appreciate the input and guidance.

Edit. As I think about this. Isn't it reasonable to sell the shares I need all with LTC gains to generate the $145,000 in cash I need, and then after April 24th arrives sell the shares that show a loss I mentioned above and then take the loss that way as a small balance against the larger gains in the original transaction?
Yes, this works. This would require you to sell no tax lots that have a loss until after your 30 day window.

Also, just so you realize, the wash sale loss isn't all lost. While the loss is not allowed due to the wash sale rule, the amount of that loss will be added to the cost basis of the tax lot that triggered the rule, so when that tax lot is eventually sold, the basis is higher anyway and you can either have a lower gain or a loss at that time.
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Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

twh wrote: Wed Mar 29, 2023 11:03 am
Basel Hodge wrote: Wed Mar 29, 2023 7:57 am

Edit. As I think about this. Isn't it reasonable to sell the shares I need all with LTC gains to generate the $145,000 in cash I need, and then after April 24th arrives sell the shares that show a loss I mentioned above and then take the loss that way as a small balance against the larger gains in the original transaction?
Yes, this works. This would require you to sell no tax lots that have a loss until after your 30 day window.

Also, just so you realize, the wash sale loss isn't all lost. While the loss is not allowed due to the wash sale rule, the amount of that loss will be added to the cost basis of the tax lot that triggered the rule, so when that tax lot is eventually sold, the basis is higher anyway and you can either have a lower gain or a loss at that time.
Thank you! I think I finally have it all sorted. Very good learning opportunity I just experienced. It will definitely help going forward.
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cchrissyy
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Re: Cost basis question

Post by cchrissyy »

OP, if you sell those small lots that came from dividends before you do anything else, then they won't be there to cause a wash sale anymore. since they are small, you can sell them without caring much if they have a short term loss of gain. just get them out of the way and do the bigger sale and loss recognition tomorrow without having to consider these shares anymore.
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Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

cchrissyy wrote: Wed Mar 29, 2023 1:10 pm OP, if you sell those small lots that came from dividends before you do anything else, then they won't be there to cause a wash sale anymore. since they are small, you can sell them without caring much if they have a short term loss of gain. just get them out of the way and do the bigger sale and loss recognition tomorrow without having to consider these shares anymore.
I think I understand this! Selling the recent dividend invested shares first, is as if they were never there relative to a wash sale (as long as I wait to sell the other shares the next day). Do I have that right? If so that seems another elegant and useful solution. Thank you.
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Basel Hodge
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Re: Cost basis question

Post by Basel Hodge »

cchrissyy wrote: Wed Mar 29, 2023 1:10 pm OP, if you sell those small lots that came from dividends before you do anything else, then they won't be there to cause a wash sale anymore. since they are small, you can sell them without caring much if they have a short term loss of gain. just get them out of the way and do the bigger sale and loss recognition tomorrow without having to consider these shares anymore.
I spoke with a trade specialist from Vanguard today and asked about selling the recent dividend shares first and waiting a day later after those shares are sold to then follow up with the larger sale (including shares sold for loss) in order to a avoid a wash sale. He told me this would not avoid a wash sale.

Any others wish to weigh in on this?
increment
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Re: Cost basis question

Post by increment »

Basel Hodge wrote: Thu Mar 30, 2023 12:35 pm I spoke with a trade specialist from Vanguard today and asked about selling the recent dividend shares first and waiting a day later after those shares are sold to then follow up with the larger sale (including shares sold for loss) in order to a avoid a wash sale. He told me this would not avoid a wash sale.
If it is a wash sale, then the amount of disallowed loss is added to the basis of the newly purchased shares. You get the same net effect (as the "no wash sale" interpretation) once the newly purchased shares are sold, which you are planning to have already done.
toddthebod
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Re: Cost basis question

Post by toddthebod »

Basel Hodge wrote: Thu Mar 30, 2023 12:35 pm
cchrissyy wrote: Wed Mar 29, 2023 1:10 pm OP, if you sell those small lots that came from dividends before you do anything else, then they won't be there to cause a wash sale anymore. since they are small, you can sell them without caring much if they have a short term loss of gain. just get them out of the way and do the bigger sale and loss recognition tomorrow without having to consider these shares anymore.
I spoke with a trade specialist from Vanguard today and asked about selling the recent dividend shares first and waiting a day later after those shares are sold to then follow up with the larger sale (including shares sold for loss) in order to a avoid a wash sale. He told me this would not avoid a wash sale.

Any others wish to weigh in on this?
I don't know if they retroactively adjust the cost basis of the dividend-reinvestment shares you sell first, but think of it this way: Let's say you sell your older shares with a loss, and you generate a wash sale because of your dividend-reinvestment shares. The non-deductible loss will be added to your replacement shares to increase their basis. Then, you sell your new shares in order to realize that loss. Why should it matter if you do it the other way around?
FactualFran
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Re: Cost basis question

Post by FactualFran »

Basel Hodge wrote: Thu Mar 30, 2023 12:35 pm I spoke with a trade specialist from Vanguard today and asked about selling the recent dividend shares first and waiting a day later after those shares are sold to then follow up with the larger sale (including shares sold for loss) in order to a avoid a wash sale. He told me this would not avoid a wash sale.
What shares did the trade specialist state would have their basis adjusted because of a wash sale?

There is no wash sale with the larger sale that included shares sold for a loss if there were no shares
  • owned at the time of the larger sale that were acquired within 30 day before the larger sale
  • acquired within 30 days after the larger sale
Rev. Rul. 56-602 (that start near the bottom of the page shown by https://books.google.com/books?id=eH7PA ... &lpg=PA528) is specifically about there not being a wash sale when a portion of a purchase lot is sold due to the remaining shares of the same purchase lot. Selling all, rather than a portion, of a purchase lot should not affect the reasoning behind the ruling.
rkhusky
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Re: Cost basis question

Post by rkhusky »

Basel Hodge wrote: Thu Mar 30, 2023 12:35 pm
cchrissyy wrote: Wed Mar 29, 2023 1:10 pm OP, if you sell those small lots that came from dividends before you do anything else, then they won't be there to cause a wash sale anymore. since they are small, you can sell them without caring much if they have a short term loss of gain. just get them out of the way and do the bigger sale and loss recognition tomorrow without having to consider these shares anymore.
I spoke with a trade specialist from Vanguard today and asked about selling the recent dividend shares first and waiting a day later after those shares are sold to then follow up with the larger sale (including shares sold for loss) in order to a avoid a wash sale. He told me this would not avoid a wash sale.

Any others wish to weigh in on this?
Vanguard personnel are not supposed to give tax advice. I wouldn’t trust them on this potentially complicated topic. I also doubt that their computers would flag this as a wash sale since, as has been noted, how would they adjust the basis of shares no longer in your account?
Katietsu
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Re: Cost basis question

Post by Katietsu »

Basel Hodge wrote: Thu Mar 30, 2023 12:35 pm
cchrissyy wrote: Wed Mar 29, 2023 1:10 pm OP, if you sell those small lots that came from dividends before you do anything else, then they won't be there to cause a wash sale anymore. since they are small, you can sell them without caring much if they have a short term loss of gain. just get them out of the way and do the bigger sale and loss recognition tomorrow without having to consider these shares anymore.
I spoke with a trade specialist from Vanguard today and asked about selling the recent dividend shares first and waiting a day later after those shares are sold to then follow up with the larger sale (including shares sold for loss) in order to a avoid a wash sale. He told me this would not avoid a wash sale.

Any others wish to weigh in on this?
I would say that he is wrong. Guess this demonstrates a reason that they should not give tax advice.
evancox10
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Re: Cost basis question

Post by evancox10 »

Like others have mentioned, just sell the shares recently bought due to dividend reinvestment along with the rest of the shares you want to sell, and there will be no wash sale. You don't have to do this in separate transactions, but you can if you want.

More information here, specifically situations 4 and 5:
https://fairmark.com/investment-taxatio ... ent-stock/

Even if they do mark it as a wash sale, it would all come out in the wash (haha) anyways. The "replacement shares" (ie the dividend shares) would have their basis adjusted upwards by $X, and the shares sold at a loss will have the basis adjusted downward by -$X, and it will just cancel out.
placeholder
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Re: Cost basis question

Post by placeholder »

Vanguard isn't going to do wash sale adjustments across accounts anyway as that's not required by the law.
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