TLH Calculation Help

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TLH Calculation Help

Postby Average Investor » Sun Dec 30, 2012 4:40 pm

I am considering a TLH for TSM in my taxable account. On the Vanguard site when I look at the "Cost Basis" for this fund it shows a loss of $4100. However when I look at "Personal Performance" for the fund it shows a gain of $2200. I did some buying and selling of the fund earlier in the year and had locked in some gains, perhaps the cause the discrepancy along with dividends and other end of year distributions? Which would I use for TLH calculation purposes?

Thank you in advance.
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Re: TLH Calculation Help

Postby livesoft » Sun Dec 30, 2012 4:44 pm

I recommend you forget about the web site and look at actual statements that you have. Maybe those statements are on the web site, too.

How much did you actually pay for the shares you wish to sell? That would be a basis unless for some reason you decided to use Average Basis earlier this year.

Also, when I click on the "Personal performance" tab, I see very clearly the following "Why cost basis is not performance".
Last edited by livesoft on Sun Dec 30, 2012 4:51 pm, edited 1 time in total.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: TLH Calculation Help

Postby Average Investor » Sun Dec 30, 2012 4:49 pm

livesoft wrote:I recommend you forget about the web site and look at actual statements that you have. Maybe those statements are on the web site, too.

How much did you actually pay for the shares you wish to sell? That would be a basis unless for some reason you decided to use Average Basis earlier this year.


Thanks, this holding is set to average cost basis. The difference between what was actually paid and the current value appears to be the $4100 loss.

Thank you.
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Re: TLH Calculation Help

Postby livesoft » Sun Dec 30, 2012 4:55 pm

If you are using Average Basis AND you have done some buying after you have previously sold, then you pretty much have to trust Vanguard on this. I don't know anyone that can calculate their Average Basis themselves after some sell transactions, so there is no way to double-check if Vanguard has done it correctly.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: TLH Calculation Help

Postby Average Investor » Sun Dec 30, 2012 5:10 pm

livesoft wrote:If you are using Average Basis AND you have done some buying after you have previously sold, then you pretty much have to trust Vanguard on this. I don't know anyone that can calculate their Average Basis themselves after some sell transactions, so there is no way to double-check if Vanguard has done it correctly.


Thank you.
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Re: TLH Calculation Help

Postby Sidney » Sun Dec 30, 2012 5:12 pm

livesoft wrote:If you are using Average Basis AND you have done some buying after you have previously sold, then you pretty much have to trust Vanguard on this. I don't know anyone that can calculate their Average Basis themselves after some sell transactions, so there is no way to double-check if Vanguard has done it correctly.

That's why I like specific ID. I can always refer to the confirmations of the purchase.
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Re: TLH Calculation Help

Postby Average Investor » Sun Dec 30, 2012 5:15 pm

Sidney wrote:
livesoft wrote:If you are using Average Basis AND you have done some buying after you have previously sold, then you pretty much have to trust Vanguard on this. I don't know anyone that can calculate their Average Basis themselves after some sell transactions, so there is no way to double-check if Vanguard has done it correctly.

That's why I like specific ID. I can always refer to the confirmations of the purchase.


Thanks.

Do you know if I now change the cost basis method whether it will be retroactive to any unrealized gains or losses?

Thank you.
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Re: TLH Calculation Help

Postby livesoft » Sun Dec 30, 2012 5:22 pm

Are these covered or non-covered shares?

Did you file a tax return with any words like "Average" or "AVG" listed on Schedule D for this fund?
If you did, then I think you are stuck with Average Basis if these are non-covered shares. I am not sure about covered shares.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: TLH Calculation Help

Postby Sidney » Sun Dec 30, 2012 5:28 pm

Average Investor wrote:
Sidney wrote:
livesoft wrote:If you are using Average Basis AND you have done some buying after you have previously sold, then you pretty much have to trust Vanguard on this. I don't know anyone that can calculate their Average Basis themselves after some sell transactions, so there is no way to double-check if Vanguard has done it correctly.

That's why I like specific ID. I can always refer to the confirmations of the purchase.


Thanks.

Do you know if I now change the cost basis method whether it will be retroactive to any unrealized gains or losses?

Thank you.

I've never changed from average to specific ID. Your best bet is to look at the tax publications on capital gains and losses. If you prowl around on the IRS web site you should be able to find the right publication. Pub 17 may have some on the topic -- at a minimum, they should provide a reference to the more detailed pubs on the topic. I'm working from memory here but I think Pub 550 addresses a lot of this.
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Re: TLH Calculation Help

Postby Calm Man » Sun Dec 30, 2012 6:50 pm

livesoft wrote:If you are using Average Basis AND you have done some buying after you have previously sold, then you pretty much have to trust Vanguard on this. I don't know anyone that can calculate their Average Basis themselves after some sell transactions, so there is no way to double-check if Vanguard has done it correctly.


I have never sold shares and used to think about this as I have a sheet of paper that I like to keep where I list the purchases, cost basis, average cost basis, etc. I only buy quarterly and do not reinvest so there aren't too many entries. I stopped thinking about it as I couldn't figure it out and my flagship representative couldn't explain it so I understood it. Let's say you have X shares with an average CB of $10. (Of course the shares are bought at different prices and even amounts.) Then you sell Y shares using the average CB basis. So you now have X- Y shares with I assume still an average CB of $10, right? So to calculate your current cost basis in total it would just be X-Y times $10 (I think). So to avoid confusion, let's say that X-Y is 100 shares; at $10 per share, the total CB is $1000. If you then buy 1 more share at say $11, the total cost basis would now be $1011. The average would be $1011 divided by 101. (I have been shown by the Flagship rep that all they do for average CB is total $ invested divided by total ! of shares, even though that doesn't really make sense.
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Re: TLH Calculation Help

Postby livesoft » Sun Dec 30, 2012 6:56 pm

^But suppose you bought more shares over the next few quarters and got some distributions and cashed in some shares, too. Now your average basis has ((X-Y)*$10 + Z*W)-S*T+3.1459265*D .... = ?????
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: TLH Calculation Help

Postby sscritic » Sun Dec 30, 2012 7:13 pm

livesoft wrote:If you are using Average Basis AND you have done some buying after you have previously sold, then you pretty much have to trust Vanguard on this. I don't know anyone that can calculate their Average Basis themselves after some sell transactions, so there is no way to double-check if Vanguard has done it correctly.

Ha ha! Want to try me? Give me 10 transactions.

It is pretty easy actually. Forget share prices; just look at the dollar flow.

Buy 100 for $2000.
Buy 50 for $1600 - balance 150 for $3600.
Sell 75 for (it doesn't matter) - balance 75 for $1800.
[you sold 1/2 your shares; the basis was $1800; you have $1800 left]
Buy 5 with dividends of $200 - balance 80 for $2000.
Sell 20 shares for (it doesn't matter) - balance 60 for $1500.
[you sold 1/4 your shares; the basis was $500; you have $1500 left]
and so on.
Last edited by sscritic on Sun Dec 30, 2012 7:38 pm, edited 1 time in total.
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Re: TLH Calculation Help

Postby sscritic » Sun Dec 30, 2012 7:37 pm

Switching from average basis to specific ID or FIFO. Continue the example.

You now have 60 shares with a basis of $1500 or $25 a share. Since you have sold 95 shares using average basis which sells FIFO, you sold 95 of your first purchase, so you are left with 5, 50, and 5 shares from your three purchases.

If you now switch basis methods, the basis of your shares is the basis just before the switch. In other words, every one of your 60 shares is treated as if it were purchased for $25.

You can sell those last 5 shares if you want, but their basis will be $125, not $200. If the current price is $10 a share and it hasn't been a year, you will have a short-term loss of $75 (not $150).

It's all in the CFR published in the Federal Register on December 8, 2010 (those are the new rules).

P.S. FinancialDave disagrees with me about being able to use specific ID on shares you owned before the change of basis method, but I trust my reading ability.
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Re: TLH Calculation Help

Postby livesoft » Sun Dec 30, 2012 7:38 pm

Of course, I should have exempted you sscritic, but can you do specific ID basis with less explanation and numbers? OK, I am sure you can, so no need to try. :)

Darn it, you submitted while I was typing. Bummer.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: TLH Calculation Help

Postby Average Investor » Mon Dec 31, 2012 2:26 pm

livesoft wrote:Are these covered or non-covered shares?

Did you file a tax return with any words like "Average" or "AVG" listed on Schedule D for this fund?
If you did, then I think you are stuck with Average Basis if these are non-covered shares. I am not sure about covered shares.


They are covered shares, this is a new fund for me starting in 2012, no prior tax filings for this holding.

Thank you.
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Re: TLH Calculation Help

Postby livesoft » Mon Dec 31, 2012 3:36 pm

Since these are covered shares with no prior position before 2012, then the average basis that Vanguard is giving you is believable.
Since there are alread buy & sales, it seems the you and Vanguard have previously agreed to treat those with the Average Basis method, so you have to stick with that.

However, if one was desperate to have the method be FIFO (a form of specific identification) for those earlier shares that were sold, I think one can convince Vanguard up until they need to send you a 1099B about those sales.

In this case, since the average basis shows a loss anyways, I see no reason not to sell all remaining shares and net the $4400 remaining loss ... at least based on the limited info presented in this thread. Perhaps exchange into a large-cap index or even into Total Int'l index for a couple of months, then think about switching back.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: TLH Calculation Help

Postby Average Investor » Tue Jan 01, 2013 12:41 pm

livesoft wrote:Since these are covered shares with no prior position before 2012, then the average basis that Vanguard is giving you is believable.
Since there are alread buy & sales, it seems the you and Vanguard have previously agreed to treat those with the Average Basis method, so you have to stick with that.

However, if one was desperate to have the method be FIFO (a form of specific identification) for those earlier shares that were sold, I think one can convince Vanguard up until they need to send you a 1099B about those sales.

In this case, since the average basis shows a loss anyways, I see no reason not to sell all remaining shares and net the $4400 remaining loss ... at least based on the limited info presented in this thread. Perhaps exchange into a large-cap index or even into Total Int'l index for a couple of months, then think about switching back.


Thanks for all of your help.

Happy New Year.
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Re: TLH Calculation Help

Postby sscritic » Tue Jan 01, 2013 12:58 pm

Let me try a clarification, assuming I am not misreading the question:

I own a bond fund in taxable. It pays dividends monthly which I reinvest.
In April I sold some of it using average basis, but all the sold shares were non-covered as average basis is FIFO in terms of shares sold. I still own all the shares purchased with dividends on 1/31, 2/29, and 3/30 which were used in the computation of average basis at the time of the sale in April

I subsequently changed from average basis to specific ID on the Vanguard website.

The question is this: can I sell the shares from 1/31, 2/29, and 3/30 using specific ID given that they were used in a previous averaging? This is not a question about what basis they would have (I answered that question previously), but whether Vanguard will allow me to sell the shares bought on 2/29 without selling all the other shares I still own that were purchased before then? [Let's pretend I want a short term, rather than a long term, gain or loss.]

When I go to the website and tell Vanguard I want to sell, Vanguard offers me a selection of lots to sell.
Date acquired
Various
01/31/2012
02/29/2012
03/31/2012

All of my covered lots from 2012 are there for me to sell by specific ID.

Now I haven't actually sold any of them, but I take this as an indication that Vanguard and the IRS (as I have argued before from the regulations) will allow me to sell specific lots even after they have been used in averaging. Of course, Vanguard, I, and the IRS will all use the correct basis that resulted from the averaging.
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Re: TLH Calculation Help

Postby Average Investor » Sat Jan 05, 2013 2:56 pm

sscritic wrote:Let me try a clarification, assuming I am not misreading the question:

I own a bond fund in taxable. It pays dividends monthly which I reinvest.
In April I sold some of it using average basis, but all the sold shares were non-covered as average basis is FIFO in terms of shares sold. I still own all the shares purchased with dividends on 1/31, 2/29, and 3/30 which were used in the computation of average basis at the time of the sale in April

I subsequently changed from average basis to specific ID on the Vanguard website.

The question is this: can I sell the shares from 1/31, 2/29, and 3/30 using specific ID given that they were used in a previous averaging? This is not a question about what basis they would have (I answered that question previously), but whether Vanguard will allow me to sell the shares bought on 2/29 without selling all the other shares I still own that were purchased before then? [Let's pretend I want a short term, rather than a long term, gain or loss.]

When I go to the website and tell Vanguard I want to sell, Vanguard offers me a selection of lots to sell.
Date acquired
Various
01/31/2012
02/29/2012
03/31/2012

All of my covered lots from 2012 are there for me to sell by specific ID.

Now I haven't actually sold any of them, but I take this as an indication that Vanguard and the IRS (as I have argued before from the regulations) will allow me to sell specific lots even after they have been used in averaging. Of course, Vanguard, I, and the IRS will all use the correct basis that resulted from the averaging.


Very helpful, thanks for responding.
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