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Questions about "cost basis" for fund sales
Old 01-09-2008, 09:38 AM   #1
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Questions about "cost basis" for fund sales

I've normally let my accountant wrestle through cost basis issues for capitol gains and losses of stock sales, but have to say that he has even started to seem a little bogged down with the issues at last go around. In my recent retirement, I'm wondering about a situatation that seems to boggle my head. Let's say that in a taxable account you cost average into a fund, buying three or four lot at different prices. Also you are automatically reinvesting capital gains distributions, again at various unit costs. So that after several years you have a pretty large number of fund transactions at various prices. Then you start to use the sale of stock for retirement income and would like to sell off portions of the fund every year or so. Is there any reasonable way to figure the cost basis of the funds for tax purposes that are sold, or do you just hope Vangard or who ever will provide this for you?

Hope that made some sense and advice appreciated.
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Old 01-09-2008, 09:50 AM   #2
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Unless you tell your fund which shares you sold or otherwise identify specific sharses, you have to use first-in-first-out or average basis. We always use FIFO. You just need your annual statements to work this out. It is not hard to do and Quicken or MSMoney can do it for you if you have entered all the transactions faithfully.

And it's all explained in a helpful IRS publication with examples:
Publication 564 (2007), Mutual Fund Distributions

In my experience no fund company including Vanguard has ever provided the information I wanted and used.
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Old 01-09-2008, 10:51 AM   #3
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There are several MF cost basis calculators out on the web. Here's one I use:

Mutual Fund Basis Calculator

I've verified the calculator as accurate vs. hand calculating for one of my funds. Anyway, grab all your statements. Start with the cost basis of your fund at some period of time. Then just feed each transaction (through current time) into the calculator (all dividends, cap gains, witdrawls, etc).
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Old 01-09-2008, 02:03 PM   #4
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It's basically a recordkeeping problem, not a calculating problem... the calculation is fairly straightforward and automated if you don't identify lots. It sounds hard but in actual practice isn't that bad once you have a system. I'll talk about how I do it as an example.

Back in the dotcom days when I was aspiring to be a trader and was moving my stocks around among different brokerages, I used a website called to record all my transactions so I knew the gains, but it cost $50/yr. Later when I finally started using excel for recordkeeping I ended up just keeping a spreadsheet.

Eventually I settled on a single brokerage for all my stuff, and for the 7 years or so that I was at that brokerage I noticed they kept good cost basis records on their website automatically, so I just used the records on their website. They would even calculate the cost basis upon sales, and I found it was easier to just use their calculated numbers because I have never had the need to identify specific lots.

You might think that wash sales would require you to keep your own records, but even wash sales seem to be properly handled by the brokerage website records... they just create a new cost basis record after a wash sale.

Recently I moved everything over to vanguard brokerage in kind, and one of my biggest concerns was transferring the cost basis info. Before I transferred the assets I downloaded excel spreadsheets of the cost basis from my old brokerage. I own funds for a long time, so there were 30 or more cost basis entries for some of the funds from all the dividend reinvestment. In my new vanguard account, there was a link for "enter cost basis" under the account name which would have allowed me to manually enter the spreadsheet data I had downloaded. But I delayed doing that and when I checked a couple of weeks later the link had changed to "cost basis", and most of my cost basis had been entered by someone else. I did double check it and found some errors, which appeared to have occurred due to someone OCR'ing the numbers in from a printout somewhere along the way. There was a link where I could correct those numbers so I did.

I suspect that vanguard's motivation for OCRing the cost basis info was so they would know how active of a trader I was, so they can target marketing and perks to heavy traders. It makes me wonder what other data they may have stored away behind the scenes from my old brokerage records.

From now on I'll just use whatever vanguard tells me is the cost basis whenever I sell.
It seems likely to me that at some point in the near future the brokerage websites will start allowing you to specify lots for sales and will record this as well in the cost basis records, but for now they don't seem to do this.

So in my case it would probably have been harder to let an accountant handle things, due to the fact that they probably wouldn't have noticed the corruption of the cost basis records. I suppose the accountant would have just used the faulty numbers and I would have either paid more or less tax than I owed. If I discovered the error later filing an amended return would be a big hassle.
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Old 01-10-2008, 12:04 AM   #5
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Originally Posted by LOL! View Post
In my experience no fund company including Vanguard has ever provided the information I wanted and used.
This struck me as odd, so I pulled last year's file and I am now looking at a Vanguard "Average Cost Summary" sheet provided with last year's (2006)paperwork. It lists redemption proceeds, average cost basis and categorizes LT and ST distributions. Isn't this what OP is asking for?
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Old 01-10-2008, 12:11 AM   #6
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Originally Posted by jazz4cash View Post
This struck me as odd, so I pulled last year's file and I am now looking at a Vanguard "Average Cost Summary" sheet provided with last year's (2006)paperwork. It lists redemption proceeds, average cost basis and categorizes LT and ST distributions. Isn't this what OP is asking for?
I get the same thing from Schwab, both on paper and on line. So, the statement that no brokerage house does this might not be accurate.
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Old 01-10-2008, 03:33 PM   #7
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agree....I have NEVER found that what vanguard supplied was inadequate. In addition to quarterly statement of all activity f(buys, sales, dividends, c.g. distributions, re-investments) for all fund/accounts being mailed to you, you can also get this online for the last 9 years.
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