Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
MF cost basis conundrum
Old 02-24-2017, 03:35 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,340
MF cost basis conundrum

OK fellow tax computation fiends, I'm getting conflicting opinions about the following. For determining my cost basis of a mutual fund, if during previous years I have sold specific lots and identified them for tax purposes, can I during later tax years sell bunches of shares (non-specific lots) and use average cost basis (average of all shares other than the previously sold/identified ones)?

Some people say no because that's switching cost basis methods, something not allowed. Others say it's permitted because the math works, that is, I could assemble of bunch of specific shares that would average to the average cost basis of them all; these people say that once I do use average basis I must stick with it since the math does not support switching the other direction (from average to specific lot identification).

I am asking because after several decades of buy and hold I lack compete info on some MFs set to reinvest: for some of the reinvestments the old statements show the dollar amount of the reinvestment but omit the number of shares then purchased.
__________________

GrayHare is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-24-2017, 04:34 PM   #2
Moderator Emeritus
braumeister's Avatar
 
Join Date: Feb 2010
Location: Flyover country
Posts: 13,588
My understanding has always been that the cost basis is determined when you buy it, so you can't change it later.
__________________

braumeister is offline   Reply With Quote
Old 02-24-2017, 04:52 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,788
It seems that you don't have a number for average basis anyways, so why use it.

If one sells shares without using average basis, one doesn't need to specifically identify the lots sold if one doesn't want to. In that case the IRS says that you used FIFO (same as with average basis). Also one can put the Date Acquired as "Various" if one bunches a bunch of lots together for selling on the same date.

So you might be able to figure out the number of shares and the basis of those shares, but not the exact purchase dates and prices by a little forensic work with your statements and with the internet. For instance, you probably have recent records and can "remove" those shares from the calculations.

In the old days, one actually had to put "Avg Cost" or something like that on their Schedule D to specify that they used Average basis and were stuck using it from then on.
LOL! is offline   Reply With Quote
Old 02-24-2017, 04:54 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,788
Quote:
Originally Posted by braumeister View Post
My understanding has always been that the cost basis is determined when you buy it, so you can't change it later.
This seems true on the face of it, but if one uses Average Basis, then the average price_per_share_paid does change with subsequent buys and sales. That's why I never use Average Cost (or Average Basis) because I could never make the calculation. With Specific Identification, the basis is what you paid for a share and that should not change (but should take into account splits, reverse splits, conversions, etc.).
LOL! is offline   Reply With Quote
Old 02-24-2017, 04:56 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,340
Quote:
Originally Posted by LOL! View Post
It seems that you don't have a number for average basis anyways, so why use it.
No, I can calc the average of the non-specific-ID shares since the statements show total number of shares and total spent.
GrayHare is online now   Reply With Quote
Old 02-24-2017, 05:01 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,788
But do you have to back out the previous shares sold via specific id from that calculation?
LOL! is offline   Reply With Quote
Old 02-24-2017, 05:04 PM   #7
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: lumpen slums of cyberspace
Posts: 30,299
Quote:
Originally Posted by GrayHare View Post
OK fellow tax computation fiends, I'm getting conflicting opinions about the following. For determining my cost basis of a mutual fund, if during previous years I have sold specific lots and identified them for tax purposes, can I during later tax years sell bunches of shares (non-specific lots) and use average cost basis (average of all shares other than the previously sold/identified ones)?

Some people say no because that's switching cost basis methods, something not allowed. Others say it's permitted because the math works, that is, I could assemble of bunch of specific shares that would average to the average cost basis of them all; these people say that once I do use average basis I must stick with it since the math does not support switching the other direction (from average to specific lot identification).

I am asking because after several decades of buy and hold I lack compete info on some MFs set to reinvest: for some of the reinvestments the old statements show the dollar amount of the reinvestment but omit the number of shares then purchased.
The law changed in 2012. Previous to that, you chose a method and then stuck with it. Since then you are free to change methods. You do need to keep careful records to show your calculations are correct.

Not sure how that resolves your problem. You still need to have accurate cost info on all your shares, both sold and still holding.
MichaelB is offline   Reply With Quote
Old 02-24-2017, 05:07 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,860
Quote:
Originally Posted by GrayHare View Post
..................................

I am asking because after several decades of buy and hold I lack compete info on some MFs set to reinvest: for some of the reinvestments the old statements show the dollar amount of the reinvestment but omit the number of shares then purchased.
don't know what kind info you have and how complete.....but if all you're missing is the # of shares in the reinvestment, can't you look at the total shares after the reinvestment (but before before the next reinvestment )
and compare with the number before.
kaneohe is offline   Reply With Quote
Old 02-24-2017, 05:08 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,340
Quote:
Originally Posted by LOL! View Post
But do you have to back out the previous shares sold via specific id from that calculation?
Yes, and I have the data for that because the cost basis of those specific ID shares shows on the Sched D of years ago when they sold.
GrayHare is online now   Reply With Quote
Old 02-24-2017, 05:10 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,340
Quote:
Originally Posted by kaneohe View Post
don't know what kind info you have and how complete.....but if all you're missing is the # of shares in the reinvestment, can't you look at the total shares after the reinvestment (but before before the next reinvestment )
and compare with the number before.
If it were just one month of missing reinvest that could work, but the number of reinvested shares are missing from the broker statements for a couple years.
GrayHare is online now   Reply With Quote
Old 02-24-2017, 05:13 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,340
Quote:
Originally Posted by MichaelB View Post
The law changed in 2012. Previous to that, you chose a method and then stuck with it. Since then you are free to change methods. You do need to keep careful records to show your calculations are correct.

Not sure how that resolves your problem. You still need to have accurate cost info on all your shares, both sold and still holding.
If I can now use average cost basis the problem goes away since I know the current number of shares, and the total dollars of buys+reinvests. Dividing those two values (after subtracting shares sold years ago) tells me the average basis per share.
GrayHare is online now   Reply With Quote
Old 02-24-2017, 05:22 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,606
Doesn't the fund provide you with basis information? VG does for me but I turnover things enough that I don't have any really old purchase lots.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 02-24-2017, 05:26 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,340
Quote:
Originally Posted by pb4uski View Post
Doesn't the fund provide you with basis information? VG does for me but I turnover things enough that I don't have any really old purchase lots.
Only recent stuff. The MF in question dates from the Reagan admin. Part of the joy of buy and hold.
GrayHare is online now   Reply With Quote
Old 02-24-2017, 05:28 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,860
My memory (believe at own risk) says that in the olden days you could switch from specific shares to average at any time but could not change back w/o IRS blessing.
This suggests a similar thing for non-covered shares today.
Changing Cost Basis Methods - Fairmark.com Fairmark.com
kaneohe is offline   Reply With Quote
Old 02-24-2017, 05:34 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,340
Quote:
Originally Posted by kaneohe View Post
My memory (believe at own risk) says that in the olden days you could switch from specific shares to average at any time but could not change back w/o IRS blessing.
This suggests a similar thing for non-covered shares today.
Changing Cost Basis Methods - Fairmark.com Fairmark.com
That link is great news, thanks!
__________________

GrayHare is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Selling of Funds and Cost Basis RASAP FIRE and Money 10 02-09-2007 02:55 PM
Mutual Fund Cost Basis RedHawk Young Dreamers 5 01-18-2007 02:14 PM
Investment cost basis justification for taxes Delawaredave FIRE and Money 8 01-07-2007 09:21 PM
Cost Basis - Capital Gains Question Jeb-NY FIRE and Money 16 11-13-2006 08:24 PM
How to manually update cost/basis information at Vanguard? soupcxan FIRE and Money 3 06-20-2006 11:56 AM

» Quick Links

 
All times are GMT -6. The time now is 10:42 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×