VG Brokerage Account Cost Basis Question

[jimbohoward69]

Before my VG taxable mutual fund account switched over to a brokerage account, my cost basis method was avg. cost. Sometime after the switch, I liquidated my mutual funds and had all monies parked in the VG Fed MM fund (no other mutual funds in the account).

So, at the beginning of 2022, with money just sitting there in the MM not doing anything, I decided to buy an initial $3K of VSTAX and dollar cost average $500 per paycheck. When I did this, I could have sworn that I changed my method to SpecID. Well, for the heck of it, I went into the brokerage account this morning and pulled a transaction spreadsheet. While it shows SpecID as the cost basis, the cost per share is the same all the way down until 03/01/22 (avg cost). After that date, it's all SpecID.

Because I've sold no VSTAX holdings since my initial investment, can/will VG change the cost basis to SpecID for those specific transactions? To me, it looks like a mistake on their part...unless I'm missing something. I hope my post makes sense. On the spreadsheet, yellow is initial investment, brown is DCA, and green are divs.

 

[SecondCor521]

Two things I think are true:

Cost basis method (of which specific ID is one) is per holding, not per account and not per transaction.

If you used average cost basis (which is IIRC the default at Vanguard) and sold shares, you used to be locked in to average cost basis for that holding for as long as you still held shares in that holding. I believe the rules around this changed, and now it's possible to switch from average cost to specific ID with some limitations. If you want details on this, see IRS Pub 550.

Based on the above, and your chart, I suspect this is what happened:

1. You started buying VTSAX in January 2022.
2. By default, Vanguard set your cost basis method to average cost for VTSAX.
3. Something happened in late February 2023. Perhaps you changed your cost basis method; perhaps you sold some VTSAX. Whatever it was, Vanguard is trying to comply with the limitations alluded to above.

If you sold any VTSAX in late February 2023, I think you're probably stuck with the situation as is. If you haven't sold any VTSAX since 1/1/2022, you can probably get Vanguard to fix the issue.

If you owned VTSAX before, back when you had a mutual fund type account, it's possible that ownership and cost basis method got carried forward even through the account transition. Although I doubt this as I don't think that happened to me or my Dad when we went through that transition - I think things got reset back to defaults and we had to go in and reselect specific ID again.

 

[PaunchyPirate]

Based on my experience, it sure looks like you sold some shares between 2/15 and 3/1 of 2023 and sold it using Average Cost accounting. Doing that would change all lots at that time to the same average cost value. I would double check your transactions for February 2023.

 

[jimbohoward69]

Two things I think are true:

Cost basis method (of which specific ID is one) is per holding, not per account and not per transaction.

If you used average cost basis (which is IIRC the default at Vanguard) and sold shares, you used to be locked in to average cost basis for that holding for as long as you still held shares in that holding. I believe the rules around this changed, and now it's possible to switch from average cost to specific ID with some limitations. If you want details on this, see IRS Pub 550.

Based on the above, and your chart, I suspect this is what happened:

1. You started buying VTSAX in January 2022.
2. By default, Vanguard set your cost basis method to average cost for VTSAX.
3. Something happened in late February 2023. Perhaps you changed your cost basis method; perhaps you sold some VTSAX. Whatever it was, Vanguard is trying to comply with the limitations alluded to above.

If you sold any VTSAX in late February 2023, I think you're probably stuck with the situation as is. If you haven't sold any VTSAX since 1/1/2022, you can probably get Vanguard to fix the issue.

If you owned VTSAX before, back when you had a mutual fund type account, it's possible that ownership and cost basis method got carried forward even through the account transition. Although I doubt this as I don't think that happened to me or my Dad when we went through that transition - I think things got reset back to defaults and we had to go in and reselect specific ID again.

Based on my experience, it sure looks like you sold some shares between 2/15 and 3/1 of 2023 and sold it using Average Cost accounting. Doing that would change all lots at that time to the same average cost value. I would double check your transactions for February 2023.

I used Vanguard's search engine and went back five years (and filtered on VTSAX only). The only "Sell" transaction was back on 05/19/2020 when I sold all my shares of VTSAX...and the proceeds went into VFMXX (Fed MM acct). I also confirmed this in Quicken, as well as past VG 1099s.

So I think I might have a good argument on getting them to change the cost basis method of the shares accumulated since 1/22/2033 to SpecID...but obviously VG makes the ultimate decision. I hope they do. Now that I'm getting closer to early retirement, I'd like to be able to choose lots on that account when I withdrawal.

 

[SecondCor521]

I used Vanguard's search engine and went back five years (and filtered on VTSAX only). The only "Sell" transaction was back on 05/19/2020 when I sold all my shares of VTSAX...and the proceeds went into VFMXX (Fed MM acct). I also confirmed this in Quicken, as well as past VG 1099s.

I'd call and ask if I were you. Something probably happened in late February, and if not a sale, it would be good to know what it was. Once you know what it was, then you can make a more informed decision how to proceed.

So I think I might have a good argument on getting them to change the cost basis method of the shares accumulated since 1/22/2033 to SpecID...but obviously VG makes the ultimate decision. I hope they do. Now that I'm getting closer to early retirement, I'd like to be able to choose lots on that account when I withdrawal.

Technically you as the taxpayer make the ultimate decision. VG, like all custodians, are required to track and report, but if the taxpayer believes it's wrong, they can make adjustments on their tax return to correct it.

I *really* wouldn't go down that road unless your 10,000% sure you know what you're doing, though. 99.99%+ of the time, Vanguard and the other good brokerages report things correctly and comply with the tax laws. A suspected error or issue is almost always a misunderstanding or mistake by the taxpayer. And even if the taxpayer is correct, beginning down this road could easily lead to audits and years and years of adjustments.

It does sort of look like you have average cost on those earlier lots and spec ID now and going forward. If that's the case, then when you go to sell you can pick lots; it'll just be those early lots will all have the same basis.

 

[jimbohoward69]

I'd call and ask if I were you. Something probably happened in late February, and if not a sale, it would be good to know what it was. Once you know what it was, then you can make a more informed decision how to proceed.

Technically you as the taxpayer make the ultimate decision. VG, like all custodians, are required to track and report, but if the taxpayer believes it's wrong, they can make adjustments on their tax return to correct it.

I *really* wouldn't go down that road unless your 10,000% sure you know what you're doing, though. 99.99%+ of the time, Vanguard and the other good brokerages report things correctly and comply with the tax laws. A suspected error or issue is almost always a misunderstanding or mistake by the taxpayer. And even if the taxpayer is correct, beginning down this road could easily lead to audits and years and years of adjustments.

It does sort of look like you have average cost on those earlier lots and spec ID now and going forward. If that's the case, then when you go to sell you can pick lots; it'll just be those early lots will all have the same basis.

Yeah, I think a phone call would be best...just to hear what they have to say about the matter. I like to think I have good long term memory but maybe it stems from the sale/liquidation of VTSAX I made back in 2020. I guess if my default was avg. cost back then, that cost basis method would remain until I changed it.

Maybe in late Feb of 2023 I realized the method was still avg cost and changed it to SpecID? Who knows? But even if that were the case, I haven't sold any VTSAX shares since I started re-accumulating them in Jan of 2022, which is why, I believe, might be a valid argument for VG to change the method of all shares accumulated since Jan of 2022 to SpecID.

Like you said though, I'll bring it to their attention and get their side of the story.