Average Cost to SpecID questions: Did Vanguard do this correctly?

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Rhadamanthus
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Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

Hi all,

I recently switched my Vanguard taxable account from AvgCost to SpecID. This is the result. My thinking was that if I wanted to sell some shares (which I am considering), I could potentially tax-loss harvest, but that doesn't seem to be the case since I don't have any lots with losses (current month notwithstanding). So looking at this, if I wanted to sell say $5,000 worth, would the best approach be simply to sell from the oldest lot? From my understanding, given this account's history, there doesn't seem to be any value between AvgCost and SpecID, or am I missing something?

Thanks,
Calygos
Last edited by Rhadamanthus on Sun Feb 11, 2018 8:58 am, edited 1 time in total.
livesoft
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Re: Question about selling SpecID shares with no losses

Post by livesoft »

It appears that Vanguard gave each individual lot the previous Average Cost per Share times the number of shares --- and not the cost you actually paid to buy each individual lot. That could be legitimate if you have previously sold shares using Average Cost. Or it could be a mistake on Vanguard's part.

So right now, you are correct in your statement "given this account's history, there doesn't seem to be any value between AvgCost and SpecID"

I'd figure out why Vanguard did what it did. Perhaps they can tell you.

Added: I see that the 3/14/2016 lot has a little icon next to it. That's probably something to click on and read. It is also odd to me that you have 2 lots on 01/09/2017 and another the next day.
Last edited by livesoft on Sun Feb 11, 2018 8:44 am, edited 1 time in total.
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Rhadamanthus
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Re: Question about selling SpecID shares with no losses

Post by Rhadamanthus »

I actually sold about $72k worth of shares during 2016 (long story, but the reasons don't matter) so, yes, I did sell a lot (no pun intended) of shares while it was set to AvgCost.

EDIT: Just saw your edit. The icon says "the shares in this lot are adjusted by a wash sale."

EDIT 2: Looking at my purchases, I sold a bunch on 3/4/2016, and then the 3/14 purchases are automatic dividend reinvestments.
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Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

I've never switched from Average Cost like you did, so someone else will have to comment about it. You might change the thread title to "Average Cost to SpecID questions: Did Vanguard do this correctly?"
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Rhadamanthus
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

livesoft wrote: Sun Feb 11, 2018 8:48 am I've never switched from Average Cost like you did, so someone else will have to comment about it. You might change the thread title to "Average Cost to SpecID questions: Did Vanguard do this correctly?"
I can change the title, but to answer your last edit question, I looking at my transaction history, the additional lot on 1/9/17 was because at the time I had shares of both VTSAX and VTIAX in the account and there were some dividend reinvestments, plus a couple of extra purchases I made due to one-off extra income from Quicksilver annual cash back rewards check. I eventually simplified the portfolio, moving my international holdings to my traditional IRA.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

Presumably your 2016 tax return reported the wash sale because you imported the 1099-B from Vanguard and your tax prep software did the right thing.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by kaneohe »

My impression is that you can change from AVB to specID. However if you have ever sold AVB shares previously, then all shares you own before you make the change, remain AVB. New shares you buy after you make the change become specID.

If you had lots you bought for 20/sh, 60/sh, 100/sh with 100 sh/lot, your average cost would be 60/sh. If you sold 200sh, your average cost of those shares would be 60 and the average cost of the remaining shares would also be 60. This would not match the 100/sh , the last lot that you bought ..........you sold the first 2 lots under FIFO........so to make the math come out right, the shares you hold remain AVG . New shares get the spec ID basis once you switch.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

livesoft wrote: Sun Feb 11, 2018 9:02 am Presumably your 2016 tax return reported the wash sale because you imported the 1099-B from Vanguard and your tax prep software did the right thing.
I just looked at the 2016 1099-B and it does show the amounts for disallowed wash sale losses (box 1g). I used Turbo Tax Online so I'm going to continue assuming it did do the right thing and not worry about it. :)
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

It seems like Vanguard would have a white paper explaining how they do the cost basis method change that one could read on their web site. After all, somebody had to create the specs and algorithm for what would be done by the computers and the Vanguard employees when a customer requested a change.
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Rhadamanthus
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

kaneohe wrote: Sun Feb 11, 2018 9:13 am My impression is that you can change from AVB to specID. However if you have ever sold AVB shares previously, then all shares you own before you make the change, remain AVB. New shares you buy after you make the change become specID.

If you had lots you bought for 20/sh, 60/sh, 100/sh with 100 sh/lot, your average cost would be 60/sh. If you sold 200sh, your average cost of those shares would be 60 and the average cost of the remaining shares would also be 60. This would not match the 100/sh , the last lot that you bought ..........you sold the first 2 lots under FIFO........so to make the math come out right, the shares you hold remain AVG . New shares get the spec ID basis once you switch.
That makes sense. And from the fact that the most recent transaction in my cost basis breakdown shows a different purchase price than all of the prior ones, since it was the first purchase after switching to SpecID, would seem to confirm the assessment.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

livesoft wrote: Sun Feb 11, 2018 9:18 am It seems like Vanguard would have a white paper explaining how they do the cost basis method change that one could read on their web site. After all, somebody had to create the specs and algorithm for what would be done by the computers and the Vanguard employees when a customer requested a change.
I did find this with a quick search. It and this discussion in general makes me wonder if it was worth making the switch and whether I should change back to AvgCost for simplicity.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

Are you saying that clicking some buttons is not simple?

Clearly, I wouldn't change back because I find SpecID the simplest: Shares have a cost basis of what you paid for them and they don't change. Average Cost: Shares change their cost basis every time you buy and sell shares.
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dbr
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by dbr »

Calygos wrote: Sun Feb 11, 2018 9:24 am
livesoft wrote: Sun Feb 11, 2018 9:18 am It seems like Vanguard would have a white paper explaining how they do the cost basis method change that one could read on their web site. After all, somebody had to create the specs and algorithm for what would be done by the computers and the Vanguard employees when a customer requested a change.
I did find this with a quick search. It and this discussion in general makes me wonder if it was worth making the switch and whether I should change back to AvgCost for simplicity.
Think ahead years and see if it might not be a good idea to keep up with Spec ID when the time comes that you are faced with selling things with large gains.

Also, I noticed an error in that page. They say that for tax purposes uncovered shares are reported at average cost basis. That is true of their report to you but the basis on uncovered shares is not reported to the IRS which means that legally you can use spec ID on uncovered shares. Whether or not Vanguard will cooperate with the requirement of supplying broker confirmation of what lots were sold for uncovered shares remains to be seen.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by cherijoh »

kaneohe wrote: Sun Feb 11, 2018 9:13 am My impression is that you can change from AVB to specID. However if you have ever sold AVB shares previously, then all shares you own before you make the change, remain AVB. New shares you buy after you make the change become specID.

If you had lots you bought for 20/sh, 60/sh, 100/sh with 100 sh/lot, your average cost would be 60/sh. If you sold 200sh, your average cost of those shares would be 60 and the average cost of the remaining shares would also be 60. This would not match the 100/sh , the last lot that you bought ..........you sold the first 2 lots under FIFO........so to make the math come out right, the shares you hold remain AVG . New shares get the spec ID basis once you switch.
Yes, kaneohe is correct. Once you sell anything using average cost basis you lose the ability to pick specific lots on anything purchased before the last sale date that used average cost basis. You basically threw them into the same soup pot, mixed it up, and then ate part of the soup. Did you really think that you could split it back out to its individual parts?
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

dbr wrote: Sun Feb 11, 2018 9:30 am
Calygos wrote: Sun Feb 11, 2018 9:24 am
livesoft wrote: Sun Feb 11, 2018 9:18 am It seems like Vanguard would have a white paper explaining how they do the cost basis method change that one could read on their web site. After all, somebody had to create the specs and algorithm for what would be done by the computers and the Vanguard employees when a customer requested a change.
I did find this with a quick search. It and this discussion in general makes me wonder if it was worth making the switch and whether I should change back to AvgCost for simplicity.
Think ahead years and see if it might not be a good idea to keep up with Spec ID when the time comes that you are faced with selling things with large gains.

Also, I noticed an error in that page. They say that for tax purposes uncovered shares are reported at average cost basis. That is true of their report to you but the basis on uncovered shares is not reported to the IRS which means that legally you can use spec ID on uncovered shares. Whether or not Vanguard will cooperate with the requirement of supplying broker confirmation of what lots were sold for uncovered shares remains to be seen.
I wouldn't have noticed such an error, but it was that section about recordkeeping that had me second-guessing the change, but maybe I was just misunderstanding my reporting obligations. If the information Vanguard provides, especially on Schedule D, is all I really have to be concerned about, then the recordkeeping and reporting really isn't as onerous as the description makes it sound.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

cherijoh wrote: Sun Feb 11, 2018 9:36 am
kaneohe wrote: Sun Feb 11, 2018 9:13 am My impression is that you can change from AVB to specID. However if you have ever sold AVB shares previously, then all shares you own before you make the change, remain AVB. New shares you buy after you make the change become specID.

If you had lots you bought for 20/sh, 60/sh, 100/sh with 100 sh/lot, your average cost would be 60/sh. If you sold 200sh, your average cost of those shares would be 60 and the average cost of the remaining shares would also be 60. This would not match the 100/sh , the last lot that you bought ..........you sold the first 2 lots under FIFO........so to make the math come out right, the shares you hold remain AVG . New shares get the spec ID basis once you switch.
Yes, kaneohe is correct. Once you sell anything using average cost basis you lose the ability to pick specific lots on anything purchased before the last sale date that used average cost basis. You basically threw them into the same soup pot, mixed it up, and then ate part of the soup. Did you really think that you could split it back out to its individual parts?
No, I knew the separate lots would retain the average share price after the switch to SpecID. I was more thinking about how I don't have any losses in any of the lots so, as of today, there doesn't seem to be any benefit or at least significant considerations in which lots to sell if I wanted to, but please correct me if that's wrong in any way.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by dbr »

Calygos wrote: Sun Feb 11, 2018 9:40 am
cherijoh wrote: Sun Feb 11, 2018 9:36 am
kaneohe wrote: Sun Feb 11, 2018 9:13 am My impression is that you can change from AVB to specID. However if you have ever sold AVB shares previously, then all shares you own before you make the change, remain AVB. New shares you buy after you make the change become specID.

If you had lots you bought for 20/sh, 60/sh, 100/sh with 100 sh/lot, your average cost would be 60/sh. If you sold 200sh, your average cost of those shares would be 60 and the average cost of the remaining shares would also be 60. This would not match the 100/sh , the last lot that you bought ..........you sold the first 2 lots under FIFO........so to make the math come out right, the shares you hold remain AVG . New shares get the spec ID basis once you switch.
Yes, kaneohe is correct. Once you sell anything using average cost basis you lose the ability to pick specific lots on anything purchased before the last sale date that used average cost basis. You basically threw them into the same soup pot, mixed it up, and then ate part of the soup. Did you really think that you could split it back out to its individual parts?
No, I knew the separate lots would retain the average share price after the switch to SpecID. I was more thinking about how I don't have any losses in any of the lots so, as of today, there doesn't seem to be any benefit or at least significant considerations in which lots to sell if I wanted to, but please correct me if that's wrong in any way.
You can have losses in the future, but I was also pointing out that you may be interested in future sales at least gain. This process is for the long term. The longest term is when a holding gets basis step up when you are gone.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

dbr wrote: Sun Feb 11, 2018 9:42 am
Calygos wrote: Sun Feb 11, 2018 9:40 am
cherijoh wrote: Sun Feb 11, 2018 9:36 am
kaneohe wrote: Sun Feb 11, 2018 9:13 am My impression is that you can change from AVB to specID. However if you have ever sold AVB shares previously, then all shares you own before you make the change, remain AVB. New shares you buy after you make the change become specID.

If you had lots you bought for 20/sh, 60/sh, 100/sh with 100 sh/lot, your average cost would be 60/sh. If you sold 200sh, your average cost of those shares would be 60 and the average cost of the remaining shares would also be 60. This would not match the 100/sh , the last lot that you bought ..........you sold the first 2 lots under FIFO........so to make the math come out right, the shares you hold remain AVG . New shares get the spec ID basis once you switch.
Yes, kaneohe is correct. Once you sell anything using average cost basis you lose the ability to pick specific lots on anything purchased before the last sale date that used average cost basis. You basically threw them into the same soup pot, mixed it up, and then ate part of the soup. Did you really think that you could split it back out to its individual parts?
No, I knew the separate lots would retain the average share price after the switch to SpecID. I was more thinking about how I don't have any losses in any of the lots so, as of today, there doesn't seem to be any benefit or at least significant considerations in which lots to sell if I wanted to, but please correct me if that's wrong in any way.
You can have losses in the future, but I was also pointing out that you may be interested in future sales at least gain. This process is for the long term. The longest term is when a holding gets basis step up when you are gone.
Yeah, I meant to add that I do realize it's for the future, especially with the larger market correction we could see this year. But you raise an interesting point. When I am gone, that will be it as far as family since I'm the youngest (just one older sibling) and single (and planning to stay that way), so I'll definitely need to figure out what should happen to my estate when I'm gone. Probably have it liquidated and go to some charity, I'd imagine (after all outstanding expenses are covered, etc.).
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by dbr »

Calygos wrote: Sun Feb 11, 2018 9:51 am

Yeah, I meant to add that I do realize it's for the future, especially with the larger market correction we could see this year. But you raise an interesting point. When I am gone, that will be it as far as family since I'm the youngest (just one older sibling) and single (and planning to stay that way), so I'll definitely need to figure out what should happen to my estate when I'm gone. Probably have it liquidated and go to some charity, I'd imagine (after all outstanding expenses are covered, etc.).
Which also brings up that qualified charitable donations of appreciated stock escape tax, another reason to keep track of what is what.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by cherijoh »

dbr wrote: Sun Feb 11, 2018 9:30 am
Calygos wrote: Sun Feb 11, 2018 9:24 am
livesoft wrote: Sun Feb 11, 2018 9:18 am It seems like Vanguard would have a white paper explaining how they do the cost basis method change that one could read on their web site. After all, somebody had to create the specs and algorithm for what would be done by the computers and the Vanguard employees when a customer requested a change.
I did find this with a quick search. It and this discussion in general makes me wonder if it was worth making the switch and whether I should change back to AvgCost for simplicity.
Think ahead years and see if it might not be a good idea to keep up with Spec ID when the time comes that you are faced with selling things with large gains.

Also, I noticed an error in that page. They say that for tax purposes uncovered shares are reported at average cost basis. That is true of their report to you but the basis on uncovered shares is not reported to the IRS which means that legally you can use spec ID on uncovered shares. Whether or not Vanguard will cooperate with the requirement of supplying broker confirmation of what lots were sold for uncovered shares remains to be seen.
I have had this issue and when I contacted VG they basically said not to worry about the uncovered shares. (The 1099-B has an X next to a box that the cost basis wasn't reported to the IRS). I have a giant spread sheet showing all my individual uncovered lot purchases. I have listed which shares were sold when and at what price. This matches what appears on the schedule D for the years where I sold shares. If I ever get audited I'm hoping this will be sufficient evidence.

Another consideration for keeping Specific ID is if you are thinking about donating appreciated shares to a donor advised fund (DAF) in the future.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

dbr wrote: Sun Feb 11, 2018 9:54 amWhich also brings up that qualified charitable donations of appreciated stock escape tax, another reason to keep track of what is what.
cherijoh wrote: Sun Feb 11, 2018 9:54 am Another consideration for keeping Specific ID is if you are thinking about donating appreciated shares to a donor advised fund (DAF) in the future.
I just had to google this but that's pretty cool that you can gift appreciated stocks and neither party has to pay taxes on the capital gains and you can deduct the charitable donation. I'll definitely keep this in mind. TIL!
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

A good reason for clients with uncovered shares to switch from Average Cost to Spec ID is that the uncovered shares get a locked-in cost basis that will not change going forward. And that cost basis per share will be the same cost basis per share used by the covered shares up to the point of the Date of the cost basis method change. That will certainly simplify quite a lot of things since the cost basis of non-covered shares will henceforth be known.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by dbr »

livesoft wrote: Sun Feb 11, 2018 10:17 am A good reason for clients with uncovered shares to switch from Average Cost to Spec ID is that the uncovered shares get a locked-in cost basis that will not change going forward. And that cost basis per share will be the same cost basis per share used by the covered shares up to the point of the Date of the cost basis method change. That will certainly simplify quite a lot of things since the cost basis of non-covered shares will henceforth be known.
That is a good point.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

livesoft wrote: Sun Feb 11, 2018 10:17 am A good reason for clients with uncovered shares to switch from Average Cost to Spec ID is that the uncovered shares get a locked-in cost basis that will not change going forward. And that cost basis per share will be the same cost basis per share used by the covered shares up to the point of the Date of the cost basis method change. That will certainly simplify quite a lot of things since the cost basis of non-covered shares will henceforth be known.
Hypothetically speaking, not necessarily in this particular case, is there ever value in "uncovering" shares? That is, exchanging uncovered shares for an equivalent and then (after a waiting period to avoid wash sales) exchanging back? Pardon me if that is an ignorant question, this aspect of investing is new to me.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

I was only writing about non-covered shares that were already mandated to be average cost.

I was not writing about non-covered shares that the investor (not Vanguard) had never used Average Cost when selling, so that these non-covered shares could be using the SpecID cost basis method.

Yes, there is an advantaged to selling non-covered shares:
When they have a loss (tax-loss harvest).
When one can tax-gain harvest.
When one can give them away to children and those children sell them to invest the money in their own asset allocation.
When one needs money for expenses and the non-covered shares have the highest cost basis.
These are also the typical reasons for selling covered shares.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

Ok, yeah the TLH obviously (I was trying to read up on TGH, it seems more complicated) and the other reasons are basically around selling for the cash or gifting. I guess I was just looking it it from more of an OCD perspective. :P I have no desire to unnecessarily complicate things.

Thanks for all of the feedback! It's been enlightening and helpful.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

@Calygos, did you know at the time back in 2016 that you created a wash sale? Did you even worry about it back then?
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

livesoft wrote: Sun Feb 11, 2018 10:59 am @Calygos, did you know at the time back in 2016 that you created a wash sale? Did you even worry about it back then?
I didn't realize or even think about it then. I had a lot going on, hence the massive drawdown of my taxable account ($125k down to $42k during the year, independent of having already drawn down my emergency fund substantially, both of which I'm working to recover from now but I just have my salary as income). And I've always had automatic dividend reinvestments enabled, which is what caused the wash sale in the first place. Is that more significant than I realize?
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

I was just asking because I love the fact that you didn't even notice when many posters seem to be having huge anxiety attacks about creating inconsequential and worry-free wash sales. Yours is a great example for the masses. Thanks!
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by oneleaf »

livesoft wrote: Sun Feb 11, 2018 10:17 am A good reason for clients with uncovered shares to switch from Average Cost to Spec ID is that the uncovered shares get a locked-in cost basis that will not change going forward. And that cost basis per share will be the same cost basis per share used by the covered shares up to the point of the Date of the cost basis method change. That will certainly simplify quite a lot of things since the cost basis of non-covered shares will henceforth be known.
I think this is true regardless. Your uncovered shares average cost basis is locked in as they are tracked separately from your covered shares even if you choose average cost for your covered shares.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

^How would one know if that is truly the situation? We would need someone to report a bona fide real-life example I suppose.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

livesoft wrote: Sun Feb 11, 2018 11:13 am I was just asking because I love the fact that you didn't even notice when many posters seem to be having huge anxiety attacks about creating inconsequential and worry-free wash sales. Yours is a great example for the masses. Thanks!
Thank you for noticing and asking, I really appreciate all the advice you've given with my recent and older posts. Your contributions here have been invaluable to me and, from what I've read, many, many others here as well!

Despite how many of the questions I've asked in the past few years have seemed ignorant and/or micromanage-y, I really do strive for simplicity in everything. Even tilting my portfolio to more small/mid-cap as was discussed in my other recent post feels a little too complex, but on the other hand, I do see value in doing it from a more "own-the-market" perspective. Simplicity at the cost of security and resilience can be just as bad as, or worse than, complexity. (Hence why I'm also finally, after many times going back and forth, leaving Wells Fargo and moving to BECU and Ally. That is certainly more complicated than a single checking account, but it provides resilience if one bank were to become unavailable or compromised for some reason, and both institutions are far more customer-oriented than massive banks like WF, with BECU even being more akin to Vanguard in being "customer-owned".)

I just worry that my ignorance in many of these financial, investment-related matters can be more hurtful to my long-term financial independence, so sometimes I get down into weeds that I don't immediately recognize as weeds. It's just that recovering from the massive brokerage account and emergency fund drawdowns really has me stressed for the future and so I'm trying to be even more mindful and cautious about how I save and manage my money.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by oneleaf »

livesoft wrote: Sun Feb 11, 2018 11:21 am ^How would one know if that is truly the situation? We would need someone to report a bona fide real-life example I suppose.
Many Bogleheads have confirmed this over the years. Covered and non-covered accounts are treated as separate accounts for cost basis reporting.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

^Yes, but I don't believe most of what many people report on this forum. Screen captures are usually more factual.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by weltschmerz »

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livesoft
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

^It seems like a request to Vanguard to fix it is in order.
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Rhadamanthus
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by Rhadamanthus »

weltschmerz wrote: Sun Feb 11, 2018 12:13 pm As you can see, Vanguard is still using the Avg Cost of the shares to determine my cost per share. This is not correct. In my own spreadsheet, I have totally different numbers for each lot's gain/loss, based on the actual share price at time of purchase. I'm not sure if there is some glitch in Vanguard's system here or not. I have not yet tried to sell any of the lots, so I don't know what will show up on the 1099-B as the cost basis.
Yeah, sounds like Vanguard may have made a mistake with yours and a call may be in order. As I mentioned earlier, I think mine's okay since my most recent purchase was after changing to SpecID and it shows a different purchase price from the ones purchased under AvgCost.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by F150HD »

Calygos wrote: Sun Feb 11, 2018 8:28 am Hi all,

I recently switched my Vanguard taxable account from AvgCost to SpecID
where do you actually do this at on the Vanguard site? I've been searching the site for 30 mins and do not see where or how to accomplish this?

I'd like to do it for taxable and tax deferred (in the event I want to sell off some shares that have a 'gain' to fulfill a RMD)
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

F150HD wrote: Sun Feb 11, 2018 7:56 pm where do you actually do this at on the Vanguard site? I've been searching the site for 30 mins and do not see where or how to accomplish this?

I'd like to do it for taxable and tax deferred (in the event I want to sell off some shares that have a 'gain' to fulfill a RMD)
Won't matter for tax-advantaged accounts nor RMD. But see this thread which shows where to click:
viewtopic.php?p=2718843#p2718843
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F150HD
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by F150HD »

livesoft wrote: Sun Feb 11, 2018 7:58 pm
F150HD wrote: Sun Feb 11, 2018 7:56 pm where do you actually do this at on the Vanguard site? I've been searching the site for 30 mins and do not see where or how to accomplish this?

I'd like to do it for taxable and tax deferred (in the event I want to sell off some shares that have a 'gain' to fulfill a RMD)
Won't matter for tax-advantaged accounts nor RMD. But see this thread which shows where to click:
viewtopic.php?p=2718843#p2718843
the point of tax deferred is to sell share lots with a net GAIN when taking an RMD, not to TLH. Else, shares showing a loss may sell to satisfy an RMD etc. (unless I missed something)

Thanks for link. I recall the thread but couldnt find it. Will keep reading here...
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by weltschmerz »

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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by oneleaf »

weltschmerz wrote: Mon Feb 12, 2018 12:26 pm
livesoft wrote: Sun Feb 11, 2018 12:22 pm ^It seems like a request to Vanguard to fix it is in order.
So I called Vanguard to see what was going on here. I guess my memory if failing, because they told me that I did not select SpecID until after the 5 lots had been purchased in 2016, so those 5 lots were going to have to stay as Average Cost. This seems odd to me; I never sold anything from the 5 lots, so they have all the information needed to switch those lots to SpecID, but they would not. They said that going forward, any new lots would have the SpecID, but not those 5 lots. So if I make any new purchases of that same fund, now I will have multiple cost basis methods to deal with. Great.

I thought that when you switched from Average Cost to SpecID, it would apply retroactively to your shares, as long as you hadn't made any sales. I guess I was wrong.

It would be great if they allowed the option of selecting the cost basis method at the time of the initial purchase. As it is, it seems that the best course of action is to switch the cost basis to SpecID anytime before buying a second lot of the same security. I wish I had done that here.
I find it very annoying that you have to make a purchase on Vanguard on one day. And THEN, remember the NEXT DAY (after the trade goes through) to go into your cost basis to change it to SpecID, in order for this all to work out. It is a very poor web experience, IMO. Having used Vanguard for over a decade, I am used to all the nuances, but I feel like it's asking a lot of clients to work around these issues.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

weltschmerz wrote: Mon Feb 12, 2018 12:26 pm So I called Vanguard to see what was going on here. I guess my memory if failing, because ....
I believe some people on this forum have reported that they set the cost basis method and Vanguard mysteriously switched it to something else unbeknownst to them. I'd call back and ask another rep what is going on. Then I'd tell them to switch all those lots to Specific Id since I hadn't sold any yet.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by FactualFran »

weltschmerz wrote: Mon Feb 12, 2018 12:26 pm I thought that when you switched from Average Cost to SpecID, it would apply retroactively to your shares, as long as you hadn't made any sales. I guess I was wrong.
The IRS regulations make a distinction between a change from Average Basis and a revocation of an election to use Average Basis. When an account owner changes from Average Basis, the existing shares continue to have the Average Basis they had immediately prior to the change from Average Basis. The cost or basis method changed to applies to later purchases.

Under specific circumstances an account owner may revoke an election to use Average Basis election. Included in the circumstances are it being done by the earlier of 1) one year after the taxpayer makes the Average Basis election or 2) the date of the first sale or other disposition following the Average Basis election. The broker may extend the one-year period. After revocation, the basis of shares in the account at the time of the revocation is determined using the method in effect due to the revocation.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by dbr »

weltschmerz wrote: Mon Feb 12, 2018 12:26 pm
livesoft wrote: Sun Feb 11, 2018 12:22 pm ^It seems like a request to Vanguard to fix it is in order.
So I called Vanguard to see what was going on here. I guess my memory if failing, because they told me that I did not select SpecID until after the 5 lots had been purchased in 2016, so those 5 lots were going to have to stay as Average Cost. This seems odd to me; I never sold anything from the 5 lots, so they have all the information needed to switch those lots to SpecID, but they would not. They said that going forward, any new lots would have the SpecID, but not those 5 lots. So if I make any new purchases of that same fund, now I will have multiple cost basis methods to deal with. Great.

I thought that when you switched from Average Cost to SpecID, it would apply retroactively to your shares, as long as you hadn't made any sales. I guess I was wrong.

It would be great if they allowed the option of selecting the cost basis method at the time of the initial purchase. As it is, it seems that the best course of action is to switch the cost basis to SpecID anytime before buying a second lot of the same security. I wish I had done that here.
Do I understand this correctly? At Vanguard you have to specify SpecID when you BUY the shares even though the method is irrelevant until you make the first sale? That simply makes no sense and is really, really not customer friendly if that is true.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by FactualFran »

dbr wrote: Mon Feb 12, 2018 5:13 pm Do I understand this correctly? At Vanguard you have to specify SpecID when you BUY the shares even though the method is irrelevant until you make the first sale? That simply makes no sense and is really, really not customer friendly if that is true.
It is not a matter of not being customer friendly. It is a matter of conforming to IRS regulations. According to https://www.irs.gov/irb/2011-29_IRB
After the revocation period has expired, a taxpayer may change from the average basis method to the cost method at any time, but only for stock acquired after the date of the change (the change is prospective). After the change, the basis of the stock that was averaged remains averaged.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by livesoft »

My son recently bought a Vanguard mutual fund. He could not select the cost basis method when he placed the order. However, when I reminded him to set the cost basis method, he found the online interface stated "cost basis method not specified" and was able to change it to "Spec ID" at that time.

So ... I think Vanguard would let one make the change before any sales if the method was still "Not specified." What do you all think? Any other experience? A corollary of my thought is that weltschermz may have done something unintentionally.

See also: viewtopic.php?p=3711267#p3711267
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by triceratop »

livesoft wrote: Mon Feb 12, 2018 5:49 pm My son recently bought a Vanguard mutual fund. He could not select the cost basis method when he placed the order. However, when I reminded him to set the cost basis method, he found the online interface stated "cost basis method not specified" and was able to change it to "Spec ID" at that time.

So ... I think Vanguard would let one make the change before any sales if the method was still "Not specified." What do you all think? Any other experience? A corollary of my thought is that weltschermz may have done something unintentionally.

See also: viewtopic.php?p=3711267#p3711267
Yes Vanguard allows this. Of course you should still check before you sell again because one should never trust Vanguard's IT to not have undone your change.
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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by weltschmerz »

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Re: Average Cost to SpecID questions: Did Vanguard do this correctly?

Post by House Blend »

weltschmerz wrote: Mon Feb 12, 2018 7:44 pm I am certainly no expert on this matter, but if you want to have SpecID for all of your shares:

1) Buy the shares on day 1, there is no way to choose SpecID on this day.
2) Next day, select SpecID as the cost basis method. This selection will apply to your __future__ lots, but not the first one. But...since you only have 1 lot, this is acceptable. If you forget to set the cost basis to SpecID and then you buy another lot, then the first 2 lots will be grouped together by Avg Cost Basis. This is what the rep told me today, they cannot change the cost basis retroactively. Maybe if you call a different rep, you'll get a different answer, but I am just going play the game by these rules going forward.
Some clarifications....from a mutual-funds-only account owner:

Yesterday I decided to TLH some shares of VWIUX (Intermediate TaxEx) by exchanging for shares of VWLUX (Long Term TaxEx). It has been a few years since I last exchanged into a mutual fund not in my existing portfolio, but having read this thread I paid closer attention to the process than I would have otherwise.

Regarding your item #1, I believe this is true.

One interesting feature which seemed new (to me) is that right after you execute the trade, the confirmation page includes a link that allows you to change the handling of dividend and cap gain distributions. That was convenient--it allowed me to nix the reinvest default and redirect them to my bank account. (So, why can't they do the same for basis method elections?)

Regarding #2, today I logged in to confirm that the transaction executed as expected. On the "cost basis" tab, it showed "Average Basis" for VWLUX. I drilled down further by clicking on the ticker "VWLUX", to see the configuration and other details for the fund.

Under Cost Basis Method it read: "Not Established".

So, I have not elected a basis method, and VG is telling me that Avg. Basis is the default. My interpretation of the law is that as long as I don't sell any shares of this fund, if I elect SpecID within one year, they are required to revert the basis of all of my existing (covered) lots to their actual cost.

I believe that Vanguard is allowed to do this even after more than one year, but is not required.

In any case, today I elected SpecID for VWLUX (which generated a confirmation number BTW). The Cost Basis page now shows "Specific ID", but does not yet let me see the details for the one tax lot. Presumably that will happen by tomorrow or so.
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