Shares Transfered to Trust Account got locked into Cost Averaging

[BeanCounter62]

I just discovered (4 years after the fact) that Vanguard sees a transfer of shares from a Brokerage account into a Living Trust Account as a trigger to lock in the Cost Basis using Average Cost instead of maintaining the actual cost basis on specific lots.

Most of the mutual funds were purchased about 10 years ago with no activity besides reinvestment of dividends.

They are telling me that there's no way to change that. Anyone know a work around so that I can do some more selective selling of my shares?

 

[CaliKid]

I just discovered (4 years after the fact) that Vanguard sees a transfer of shares from a Brokerage account into a Living Trust Account as a trigger to lock in the Cost Basis using Average Cost instead of maintaining the actual cost basis on specific lots.

Most of the mutual funds were purchased about 10 years ago with no activity besides reinvestment of dividends.

They are telling me that there's no way to change that. Anyone know a work around so that I can do some more selective selling of my shares?

That's strange. Most institutions just change the account vesting and don't even give a new account number. Surprising they would do anything with cost basis. I would talk to your accountant.

 

[pb4uski]

From what you wrote it sounds like they unilaterally changed the accounting for the basis from lot-by-lot to average cost. I'm not sure that is right or they have the right to do that, but does it really make that much of a difference if only 4 years ago?

Have you ever had any sales? If not, I'm not sure that you are bound to what they did but you would need to keep detailed and accurate records because Vanguard will report based on average cost.

Can you change the basis of reporting online? When I was a Vanguard client I seem to remember being able to do that.

 

[BeanCounter62]

From what you wrote it sounds like they unilaterally changed the accounting for the basis from lot-by-lot to average cost. I'm not sure that is right or they have the right to do that, but does it really make that much of a difference if only 4 years ago?

Have you ever had any sales? If not, I'm not sure that you are bound to what they did but you would need to keep detailed and accurate records because Vanguard will report based on average cost.

Can you change the basis of reporting online? When I was a Vanguard client I seem to remember being able to do that.

It's probable that it had defaulted to Average Cost and I hadn't paid attention since I wasn't selling anything.

The Vanguard Cost Basis Details show the original purchase dates but use a cost average amount for the price of all lots transferred.

I have recently changed to Specified Lots for the funds, but Vanguard told me it will only be effective for future purchases not the ones already in my account.

My hope was I could convince Vanguard to correct their records! But that may be impossible.

If I use my Quicken records to showing the original basis, can I report that Cost Basis when I sell the shares on my taxes instead of Vanguards numbers? Then keep the documentation handy for the IRS if they notice it doesn't match the 1099 and decide to audit?

 

[pb4uski]

Yes, I think you can do that. Just keep good records because you may need to explain why the gain that you are reporting differs from what the IRS reported to them. I wouldn't bother unless the difference is significant enough to be worth the hassle of answering any IRS questions on it.

Per Bard:

I use the specific identification method for reporting gains in my brokerage account. Contrary to my instructions the brokerage reported gains to the IRS based on average cost. Can I use specific identification anyway since the brokerage firm erred?

Yes, you can still use the specific identification method for reporting gains in your brokerage account, even if the brokerage firm reported gains to the IRS based on average cost. However, you will need to take some additional steps to ensure your taxes are filed correctly.

Here's what you need to do:

1. Gather documentation:

• You will need to obtain documentation from your brokerage firm that shows the specific shares you bought and sold, including the purchase date, price, and number of shares. This documentation is usually available on your online account statement or you can request it from customer service.
• You will also need to provide copies of your purchase confirmations and trade confirmations if your brokerage statement doesn't explicitly show the specific shares you bought and sold.

2. File Form 8949:

• You will need to file Form 8949, Sales and Dispositions of Capital Assets, with your tax return. This form allows you to report your capital gains and losses for the year, including the specific identification method.
• Be sure to enter the correct information on Form 8949, including the date, symbol, quantity, cost basis, and proceeds of each share sold.
• You can download and print Form 8949 from the IRS website.

3. Attach a statement explaining the discrepancy:

• You should attach a statement to your tax return explaining the discrepancy between the information on your Form 8949 and the information provided to the IRS by your brokerage firm.
• This statement should include the following information:
  • The name of your brokerage firm
  • The date you contacted your brokerage firm about the error
  • The specific shares involved in the error
  • The correct cost basis for each share
• You should also provide copies of your documentation from your brokerage firm to support your claim.

4. Consider consulting a tax professional:

• If you are unsure how to proceed or you have any other questions about your taxes, you should consult with a tax professional.
• A tax professional can help you ensure that your taxes are filed correctly and that you are not paying more than you owe.

It's important to note that even though you can still use the specific identification method, it may take longer for the IRS to process your tax return. This is because the IRS will need to verify the information you provided.

Here are some additional resources that you may find helpful:

• IRS Publication 550: This publication provides information on how to report capital gains and losses on your tax return.
• IRS Form 8949 instructions: These instructions provide detailed information on how to complete Form 8949.
• National Association of Tax Professionals: This organization offers a directory of tax professionals in your area.

By following these steps, you can ensure that your taxes are filed correctly and that you are not paying more than you owe.

 

[target2019]

I've made cost basis adjustments in TurboTax when necessary.

 

[BeanCounter62]

Yes, I think you can do that. Just keep good records because you may need to explain why the gain that you are reporting differs from what the IRS reported to them. I wouldn't bother unless the difference is significant enough to be worth the hassle of answering any IRS questions on it.

Per Bard:

Good point ... I will think about how to quantify the impact.



My frustration has been that I feel more limited on tax harvesting when I can't select by lot.

I would also like to donate shares with the highest gains to my DAF.

It may not be worth the effort. Good idea to jump through that hoop before going down the rabbit hole of adjustments with the IRS!

 

[GhostofTomJoad]

Sorry for your trouble. I am SO glad I never became a Vanguard customer!!!! Your case is not the only one, for sure. Vanguard is nothing but bad news.

 

[Sunset]

Sorry for your trouble. I am SO glad I never became a Vanguard customer!!!! Your case is not the only one, for sure. Vanguard is nothing but bad news.

That is a very broad brush considering you have never been a customer. Like any Brokerage/Bank they will do things that are not good for some customers, but they can still have good aspects.

I've used Vanguard and many others for years, and there are good and bad points to them all.