Cost Basis

[ripper1]

I have a 4000 dollar gain in my taxable account. I am in the 15% tax bracket and therefor I believe if I sell I will not be taxed on the gain. I don't need the money but I believe if I sell and buy back later I can increase my cost basis. I have instructed Vanguard to use the Average approach for cost basis. These shares are non covered. Does this mean I have to report these to the IRS? If so, how do I do so? How long do I have to wait to buy back these shares? I am relatively new to investing in taxable stock/bond accounts as I have 75% of my portfolio in tax deferred. Any insight from the distinguished panel?

 

[GrayHare]

For tax reporting you use Schedule B. You list how much you spent acquiring the asset, how much you sold it for, and the dates of both. If you've been reinvesting dividends, you add those dollar amounts into the entry for how much you spent. If you have a taxable gain, you can repurchase immediately without suffering penalties of the "wash sale" rule. Noncovered means the broker does not know/report your cost basis.

 

[pb4uski]

....How long do I have to wait to buy back these shares? ...

Since you are selling at a gain, as far as the IRS is concerned you can buy the shares back right away. The wash sale rules only apply to loss transactions - not to transactions that result in a gain. The transaction will increase your cost basis by the amount of the gain. I am also doing this this year.

However, if the Vanguard fund that you are selling has frequent trading restrictions, you may not be able to buy it back right away, however you could buy a similar fund or funds. For example, the Vanguard 500 Index and Extended Market funds could be combined to be roughly equivalent to the Total Stock Market Index fund.

Another alternative is to sell the fund shares and then buy the ETF version of the shares in a Vanguard brokerage account.

If you have cash equal to the proceeds from the sale, you could do a buy transaction first for the value of the holding and then sell the one currently held using FIFO or specific identification and sidestep the frequent trading restriction.

Good luck.

 

[jebmke]

Schedule D - but you actually start with Form 8949 then the info is consolidated to Schedule D.

 

[GrayHare]

Schedule D - but you actually start with Form 8949 then the info is consolidated to Schedule D.

I misspoke, it's not Schedule B but rather Schedule D. Perhaps I was thinking of the bartering report which comes on Form 1099-B.

 

[JakeBrake]

I have a 4000 dollar gain in my taxable account. I am in the 15% tax bracket and therefor I believe if I sell I will not be taxed on the gain. I don't need the money but I believe if I sell and buy back later I can increase my cost basis. I have instructed Vanguard to use the Average approach for cost basis. These shares are non covered. Does this mean I have to report these to the IRS? If so, how do I do so? How long do I have to wait to buy back these shares? I am relatively new to investing in taxable stock/bond accounts as I have 75% of my portfolio in tax deferred. Any insight from the distinguished panel?

Trust me. Vanguard will step you through this and furnish all the required paperwork to IRS and you. Personally, I use Turbotax for my income tax returns. Turbotax will step you through the tax filing process. I also use the average cost basis.

 

[Animorph]

Check with a tax calculator to make sure you are still within the 15% bracket after your capital gains, and that it also has no effect on your qualified dividend taxes. Hitting the the top of the bracket can be tricky.

 

[ripper1]

When I buy back in how does this effect short term and long term gains?

 

[MichaelB]

When I buy back in how does this effect short term and long term gains?

It doesn't. Your short and long term gains are determined by how long you held between first buying and then selling. When you buy once again you start a new capital gains clock.

 

[LOL!]

Trust me. Vanguard will step you through this and furnish all the required paperwork to IRS and you. Personally, I use Turbotax for my income tax returns. Turbotax will step you through the tax filing process. I also use the average cost basis.

Vanguard will not step you through this nor will they furnish all required paperwork. Vanguard will give you a 1099B for sales of shares, but that 1099B
will not have the cost basis nor the date acquired for the non-covered shares. Vanguard may give you a non-binding non-legal document of what they think your cost basis is, but that does not mean it is correct. However, it may be correct, but it is best to check it.

It is pretty trivial to add up the cost of all the shares you have purchased. If you sell all those shares, then that's your cost basis.

Also note that the $4,000 gain may bump you into a higher tax bracket, so run the numbers before you do this.

 

[GrayHare]

It is pretty trivial to add up the cost of all the shares you have purchased. If you sell all those shares, then that's your cost basis.

For some investments it is trivial, but for ones that have been reinvesting dividends for a long time, finding the exact cost basis can be quite an undertaking.

 

[meierlde]

Vanguard will not step you through this nor will they furnish all required paperwork. Vanguard will give you a 1099B for sales of shares, but that 1099B
will not have the cost basis nor the date acquired for the non-covered shares. Vanguard may give you a non-binding non-legal document of what they think your cost basis is, but that does not mean it is correct. However, it may be correct, but it is best to check it.

It is pretty trivial to add up the cost of all the shares you have purchased. If you sell all those shares, then that's your cost basis.

Also note that the $4,000 gain may bump you into a higher tax bracket, so run the numbers before you do this.

Unless it removes the exemption for cap gains and dividends it would not have a rate effect, as the rates for cap gains and dividends for 2012 are 0% up to other income up to 69k married and 34,500 single. The cap gains would not affect the taxation of the other income at all. See the instructions for form 1040 for the qualified dividends and capital gains worksheet.