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Mutual Fund cost basis when selling
Old 10-29-2007, 12:53 PM   #1
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Mutual Fund cost basis when selling

Hello,

Is it possible to use "Specific Share Identification" while selling mutual fund shares held at Vanguard? Can this be done online?

According to this document from the irs
Publication 564 (2006), Mutual Fund Distributions

You will adequately identify your mutual fund shares, even if you bought the shares in different lots at various prices and times, if you:
  1. Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer, and
  2. Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular shares sold or transferred.
Has anyone done this? How did you accomplish it?

To date, I've only sold mutual funds when I wanted to liquidate an entire holding (or within my tax-deferred accounts), so have not had to deal with this before.

Your insight is much appreciated.

* I've seen the other posts on the subject, but want to know from people who have done this successfully at Vanguard. Thank you.
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Old 10-29-2007, 03:18 PM   #2
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It is possible. It cannot be done online. Bogleheads :: View topic - Specific Identification of Mutual Fund Shares Sold
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Old 10-30-2007, 03:57 PM   #3
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Thanks LOL!

I hope they come up with a simpler online method before I have to start selling shares to fund my ER!
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Old 10-30-2007, 04:16 PM   #4
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Are you looking for simple, or do you have a reason to want to sell specific shares for tax purposes?

VG makes it pretty simple because (I think) they just use FIFO and they will calculate the ST and LT basis and gain/loss of the shares you sold. In fact, if you sell part, you are more likely to have only a single line entry of LT gains if you have not dipped deep enough to sell some ST shares that you may have from automatic investment or reinvestment of dividends and cap gains distributions.

Actually it'll look just like what they send you at the end of the year now, and they'll keep track of your remaining shares and the basis for them. You ought to have been using their numbers even for selling entire holdings, unless you've been keeping track of those distributions that reduce your basis.
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Old 10-31-2007, 01:43 PM   #5
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Quote:
Originally Posted by RunningBum View Post
Are you looking for simple, or do you have a reason to want to sell specific shares for tax purposes?
I want to be able to specify lots while selling if I have shares that can create a loss for tax purposes. I have records of all my transactions (including distributions) in Quicken.

I've heard that this can be done at Fidelity - though that's not enough for me to change brokers.

Thanks for your input.
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Old 10-31-2007, 01:59 PM   #6
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Quote:
Originally Posted by RunningBum View Post
VG makes it pretty simple because (I think) they just use FIFO and they will calculate the ST and LT basis and gain/loss of the shares you sold.
Vanguard uses the Average Cost Basis method. By the way, if you are a Vanguard Brokerage Services customer, you can specify that Vanguard instead use either the FIFI or "Highest In, First Out (HIFO) method for computing cost basis on ETFs and stock shares (they don't do it for any mutual fund share sales).

Yes, you can save on taxes by identifying specific MF shares for sale and notifying Vanguard to sell those, and get confirmation from them, and keep that confirmation (effectively forever--or until you close out that account). Then you'll need to keep track of which ones have been sold don't forget to include the tiny purchases that may have resulted from re-invested dividends). It is an effective way to harvest losses for tax purposes, and to take capital gains at a time when it will do the least tax damage. Overall, it was not worth the hassle to us (well, ME really), we just use the average cost basis provided by Vanguard.

It probably makes sense to look at two things right now in consideration of your particular circumstances:
1) Would it make sense to sell all/some non-tax-deferred holdings before 2010 in order to get the more favorable current Cap gains tax rate, and re-purchase the same assets shortly thereafter? In addition to re-setting your cost basis at a higher level, it would also give a chance to tweak your asset allocation without (additional) tax consequences. Also, if one wanted to start using a different method of cost basis calculation, it could be done from a clean sheet.
2) Maybe work out the $$/hour of the time investment to do any type of "specific shares" cost basis accounting.
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