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Need help with cost basis - SpecID on old holdings

Posted: Sat Jun 09, 2018 4:00 pm
by hap_ca
I started investing with Vanguard over 15 years ago when I was a poor student and made small monthly contributions and reinvested dividends into VTSMX in a taxable account. I haven't sold any shares since I started investing (always re-balanced with new money) and as a result I've never picked a cost basis for my holding. I'm in a much higher bracket right now and I'd like to have more flexibility for tax loss harvesting and shift the holdings in my taxable account to more tax efficient holdings. For example I'd like to convert some of my bond holdings in my taxable account to VTSMX and make the opposite adjustment in my IRA. If I need access to cash I can just sell VTSMX in my taxable and exchange some bonds for VTSMX in my 401k account.

This strategy won't work out too well if I pick average cost basis because I will realize a lot of capital gains. I am considering picking SpecID to have more flexibility but I have a lot of small transactions including a lot of transactions before 2012 so I am at a loss as to what to do.

Is it possible to pick SpecID and have non covered (pre 2012) shares be treated with an average cost basis and covered shares (post 2012) transacted using specific lots? This sort of hybrid approach would be the most ideal since I'd be selling HIFO most of the time and would not want to touch the pre 2012 holdings.

Alternatively I've been considering just making any new contributions to VTI instead. I would do it "right" from the start by picking SpecID immediately and making larger, less frequent purchases without automatic dividend reinvestment to make tracking easier. I would leave the whole VTSMX mess alone until retirement when the tax hit of going with average cost will be minimized.