Cost basis questions

[David1961]

Two questions about cost basis, one general and one specific.

To calculate the cost basis of a stock or mutual fund, you just take the amount of money you have invested (including distributions you have reinvested) and add these up, don't you? I'm pretty sure there is nothing more to it, but want to make sure.

The other specific question. I inherited a stock about 3 years ago and it was held with the company (no brokerage). I reinvested the dividends to buy more shares for about 2 years. Then I transferred it to my brokerage, where i stopped reinvesting the dividends. On my brokerage statement, it lists a cost basis but there is a note that I may have to update the cost basis. When a stock is transferred to a brokerage account, does the company transfer the cost basis with it, or does the brokerage just take the value of the stock the day it was transferred and make that the cost basis? I assume it is the latter, so to really calculate it, I need to take the value of the stock the day I inherited it and add the value of all the reinvestments. Is all this correct?

[pb4uski]

Each purchase (including reinvested dividends, which are receipt of a dividend and purchase of shares with the dividend received)is considered a "lot" and has its own cost basis - what you "paid" for those shares (including any commissions). Your inherited stock would have a basis equal to its fair value on the date of death. Each reinvested dividend would have a basis equal to its cost (the amount of the dividend). When you transfer shares 'in kind" between brokerages, the basis is the same (the basis transfers as well) since the basis attaches to the shares regardless of who is holding the shares on your behalf.

You'll have to ask the new broker if they received cost basis information from the prior broker or whether it was based on the value of the shares on the date they received them.

When you sell you can chose to use either average cost or specific identification. With specific identification, you need to chose the lots (or portions thereof) that are being sold and the gain or loss is the difference between the sale proceeds and the basis of those lots.

With average cost, your basis in the shares sold is your total basis for all shares divided by the shares owned (before the sale) times the number of shares sold.

Specific identification is more complicated but it is easier to manage your tax liability since you can chose lots with the highest basis per share if you want a lower gain.

Beyond that, there are nuances that start making it more complicated.

[RunningBum]

I don't think average cost is an option for individual stocks, which the OP is at least in part talking about. You can either do FIFO or Spec ID, according to Calculating Your Cost Basis

[kaneohe]

It is possible your basis may be a mix.....DRIP cost basis reporting started the same time as mutual funds.....1/1/12 .....so if you received any dividends after that , they may be reported as the correct numbers. I believe that Running Bum may be correct........the question is whether DRIPs are reported like stocks.

Just be sure the company didn't go through any splits or spinoffs or mergers in which case things get messier.

[pb4uski]

Quote:

Originally Posted by RunningBum I don't think average cost is an option for individual stocks, which the OP is at least in part talking about. You can either do FIFO or Spec ID, according to Calculating Your Cost Basis

Good point of clarification. The OP said stock or mutual funds and I was thinking of the latter when I responded but your are right

[scrabbler1]

I have always used FIFO to determine my cost basis whenever I sell shares of one of my mutual funds. I have created spreadsheets for each mutual fund so once I make the sale I can figure out which shares I sold starting with the earliest shares I still owned prior to the sale. When I report the sale on Form 8949, I can simply write the range of dates. If all the shares were bought more than a year before, the entry goes on Long-Term. If all the shares were bought less than a year before, the entry goes on Short-Term. Once in a while, the sold shares straddle one year so I have to split it up into 2 entries, 2 for Long-Term and another for Short-Term. In my spreadsheet, I can easily summarize those 2 parts.

[David1961]

Quote:

Originally Posted by scrabbler1 I have always used FIFO to determine my cost basis whenever I sell shares of one of my mutual funds. I have created spreadsheets for each mutual fund so once I make the sale I can figure out which shares I sold starting with the earliest shares I still owned prior to the sale. When I report the sale on Form 8949, I can simply write the range of dates. If all the shares were bought more than a year before, the entry goes on Long-Term. If all the shares were bought less than a year before, the entry goes on Short-Term. Once in a while, the sold shares straddle one year so I have to split it up into 2 entries, 2 for Long-Term and another for Short-Term. In my spreadsheet, I can easily summarize those 2 parts.

Can I ask what the columns are on your spreadsheet? I'd think
1 - Date
2 - Dollar amount invested
3 - share price
4 - number of shares (which is basically 2 divided by 3)

Any other info I need?

[RunningBum]

Remember to include any transaction cost. If you buy 100 shares of a $30 stock and it costs $10 to buy, your cost basis is $3010, or $30.10 per share. If there's also a cost to sell, I think you reduce the proceeds by the transaction cost of the sale.

And to state the really, really obvious, you'll want a column for the name or ticker symbol of the investment.

[pb4uski]

FWIW, I use specific identification for everything and I use Quicken to track my cost basis.

[photoguy]

Are there any rules regarding how many decimal places need to be tracked (for stocks or mutual funds)? I have some odd conversions ratios like going from 233.8 to 233.5 when some MF got moved from investor to admiral.

Or when I go to sell, do I just tell vanguard to sell my lot of 99.9815678 shares (originally 100)? Does vanguard even support this many decimal places?

I guess I should have been better about tax loss harvesting and just sold the entire holding in 2009 and eliminated the fractions.

[braumeister]

Quote:

Originally Posted by photoguy Or when I go to sell, do I just tell vanguard to sell my lot of 99.9815678 shares (originally 100)? Does vanguard even support this many decimal places?

When I tell Fidelity to sell something, they have a choice in the dropdown list that reads "Sell all shares."

Doesn't Vanguard have that?

[pb4uski]

If you have elected SID when you sell a screen pops up with the number of shares, date acquired, cost basis, estimated value (proceeds), estimated gain/(loss) and whether the gain/(loss) is long-term or short-term and you just type in the number of shares of each lot you want to sell. There is also a check box for all shares. This is at Vanguard but I suspect others are similar.

[RunningBum]

You don't have to report # of shares, though the schedule D example suggests listing the # of shares and the name. Nowhere do you input the cost or sale price per share, nor the transaction fees, so there's nothing they do with # of shares. That is really for your calculations, so that if you only sell part of a holding you can figure out the cost basis to report in column e. You report that cost basis to two decimal places, or perhaps you can even round to the nearest dollar.

Looking back at my schedule D from last year, the info I imported from VG lists shares to 3 decimal places, and dollar amounts to 2.

[RunningBum]

Quote:

Originally Posted by braumeister When I tell Fidelity to sell something, they have a choice in the dropdown list that reads "Sell all shares." Doesn't Vanguard have that?

Yes, you can sell all, in which case it's easy to account for as you just total up all the purchases costs, which of course they will do for you.

The complexity comes when you want to sell less than all, but VG lists all of the purchases and what the cost basis and potential gain is, both total and per shares, and I can choose which group(s) to sell from and how much. And again, come tax time, VG will total up the costs in the 1099.

I am set up for spec ID with VG. If one is using average cost, the presentation may be different.

[photoguy]

Quote:

Originally Posted by braumeister When I tell Fidelity to sell something, they have a choice in the dropdown list that reads "Sell all shares."

Quote:

Originally Posted by pb4uski If you have elected SID when you sell a screen pops up with the number of shares, date acquired, cost basis, estimated value (proceeds), estimated gain/(loss) and whether the gain/(loss) is long-term or short-term and you just type in the number of shares of each lot you want to sell.

My issue is with non-covered shares that come from multiple lots for mutual funds. Vanguard doesn't show these separately in the sell dialog box and instead lumps them all together in one bucket.

(As an aside, a few years ago, vanguard had requested the lot information for non-covered shares and I had this entered it manually. But they appear to ignore this for their mutual funds and only kept the lot information for my ETFs.)

Because of the weird conversion rates, I would likely need to enter more than 3 decimal points to exactly match my lot size. Or sell all of my non-covered shares together. Vanguard's sell dialog box seems to limit one to 4 decimal places.

[pb4uski]

Call Vanguard and ask them. I did some gain harvesting a couple years ago and got rid of most of my non-covered shares.

[photoguy]

That's a good idea.

I just wish I had been more careful about my tax lots (I also have a few fractional lots due to dividends before I remembered to have them directed to cash).