First Time Selling - Sell Certain (losing) Lots but Don't TLH?

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Messner8000
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First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by Messner8000 »

Hi Everyone - I am looking into selling $10,000 in VTSAX from my taxable investment account to raise some money for a purchase. I've never sold stock in my account and have two questions:

(1) At first I assumed I would need to pay 15% capital gains taxed on the long-term gains. However, I looked at my purchases lot-by-lot and see that there's $10,000 in shares I purchased in 2021 that has lost money. My thinking is I should sell those specific lots rather than have Vanguard do first-in-first-out selling. Am I missing something?

(2) The losses are about $1,500. I've never done tax loss harvesting--always seemed to complicated to me. I'm torn about whether to do so as I worry it's a little complicated - I need to turn off automatic dividend reimbursement for 60 days (30 days before and after I believe--so I'd have to wait 30 days to sell the stock), account for this in my taxes, and I worry they'll be something I'll miss and will have a wash sale or other violation. Is the situation basically that I can just ignore TLH and do the sale and there is nothing else I need to do? This hurts my soul a little bit since claiming a $1500 loss would save me money on taxes (unless the market goes down over the 30 days I'm waiting to avoid a wash sale!!)

Thanks!
rkhusky
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by rkhusky »

First change your cost basis method to SpecID (if you sell anything in the fund using FIFO, all shares prior to that are locked into FIFO).

If you sell any purchases you have made within the past 30 days first and turn off reinvestment of dividends, then you would be fine selling the remaining shares at a loss the next day, without any further waiting.

Also, make sure that you have no other purchases of VSTAX in any of your or your spouse's other accounts within the last 30 days.
Topic Author
Messner8000
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by Messner8000 »

Thanks for the tip. It looks like VTSAX hasn't done dividend reinvestment in the last 30 days, and since I haven't made any purchases, it seems I could sell the shares now (and then I guess if I disabled dividend reinvestment I guess I could try to TLH...)
Jack FFR1846
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by Jack FFR1846 »

Do you have any lots that are very near today's market price? Maybe very slightly more? Sell those. Why? Since you seem to not want to claim the loss on your taxes, just avoid the loss and with a very small gain, you'll pay very little or no tax on the sale.
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rkhusky
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by rkhusky »

If you were in the 12% tax bracket (0% LTCG bracket), then you would not want to sell the shares that are at a loss, but shares at a gain.
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by placeholder »

As noted it depends on your tax situation but if you do sell at a loss it would be rather silly to not claim the loss especially if you use tax software because all you do is put in the information from the 1099 and the rest falls in place.
talzara
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by talzara »

rkhusky wrote: Sun Nov 20, 2022 7:42 am First change your cost basis method to SpecID (if you sell anything in the fund using FIFO, all shares prior to that are locked into FIFO).
Only average cost locks you in for all shares prior to the sale. You can change FIFO to SLID at any time, and you will be able to select from all the shares.
Even if you've already selected—and even used—one of these cost basis calculation methods, you can change it for future sales whenever you want.*

*If average cost was previously used, the shares you acquired before the method change may be locked with the average basis. By law, to revoke the average basis, you must change your cost basis method before the first sale, transfer, or disposition.

https://investor.vanguard.com/investor- ... t-vanguard
rkhusky
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by rkhusky »

talzara wrote: Mon Nov 21, 2022 3:48 pm
rkhusky wrote: Sun Nov 20, 2022 7:42 am First change your cost basis method to SpecID (if you sell anything in the fund using FIFO, all shares prior to that are locked into FIFO).
Only average cost locks you in for all share prior to the sale. You can change FIFO to SLID at any time, and you will be able to select from all the shares.
Even if you've already selected—and even used—one of these cost basis calculation methods, you can change it for future sales whenever you want.*

*If average cost was previously used, the shares you acquired before the method change may be locked with the average basis. By law, to revoke the average basis, you must change your cost basis method before the first sale, transfer, or disposition.

https://investor.vanguard.com/investor- ... t-vanguard
At Vanguard, Average Cost and FIFO go hand-in-hand. As do SpecID and Actual Cost. Vanguard doesn't have a combination of FIFO and Actual Cost. I did assume that the OP was at Vanguard.
talzara
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by talzara »

rkhusky wrote: Sun Nov 20, 2022 7:42 am First change your cost basis method to SpecID (if you sell anything in the fund using FIFO, all shares prior to that are locked into FIFO).
rkhusky wrote: Mon Nov 21, 2022 3:51 pm At Vanguard, Average Cost and FIFO go hand-in-hand. As do SpecID and Actual Cost. Vanguard doesn't have a combination of FIFO and Actual Cost. I did assume that the OP was at Vanguard.
You're mixing up cost basis and holding period.

Average cost basis uses a FIFO holding period. Once you sell, the average cost basis election is locked in for all shares acquired prior to the sale. However, it's locked in because of the average cost basis, not the FIFO holding period. There is no restriction on FIFO.

FIFO cost basis also uses a FIFO holding period. Once you sell, there is no restriction on switching to another cost basis method. That's because the restriction is only on average cost basis. There is no restriction on FIFO.
rkhusky
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by rkhusky »

talzara wrote: Mon Nov 21, 2022 6:02 pm
rkhusky wrote: Sun Nov 20, 2022 7:42 am First change your cost basis method to SpecID (if you sell anything in the fund using FIFO, all shares prior to that are locked into FIFO).
rkhusky wrote: Mon Nov 21, 2022 3:51 pm At Vanguard, Average Cost and FIFO go hand-in-hand. As do SpecID and Actual Cost. Vanguard doesn't have a combination of FIFO and Actual Cost. I did assume that the OP was at Vanguard.
You're mixing up cost basis and holding period.

Average cost basis uses a FIFO holding period. Once you sell, the average cost basis election is locked in for all shares acquired prior to the sale. However, it's locked in because of the average cost basis, not the FIFO holding period. There is no restriction on FIFO.

FIFO cost basis also uses a FIFO holding period. Once you sell, there is no restriction on switching to another cost basis method. That's because the restriction is only on average cost basis. There is no restriction on FIFO.
If you choose Average Cost at Vanguard, shares are sold FIFO.
If you choose SpecID at Vanguard, shares are sold using Actual Cost.
Those are the only choices at Vanguard.

There is no such thing as a FIFO holding period.

Share selection methods are FIFO, LIFO, HIFO, SpecID, etc. Cost basis methods are Average Cost or Actual Cost.
talzara
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by talzara »

rkhusky wrote: Mon Nov 21, 2022 6:12 pm If you choose Average Cost at Vanguard, shares are sold FIFO.
If you choose SpecID at Vanguard, shares are sold using Actual Cost.

Those are the only choices at Vanguard.
Those are not the only choices at Vanguard.

Vanguard offers four cost basis methods: average cost, SpecID, FIFO, and HIFO. All four of them are described in the Vanguard page that I linked to in my previous post: https://investor.vanguard.com/investor- ... t-vanguard

For average cost, the cost basis is the average cost of all shares. (The IRS also allows average cost for each holding period, but Vanguard doesn't use this method.) The shares are sold in FIFO order. You get long-term gains/losses until you run out of long-term shares, and then you get short-term gains/losses.

For SpecID, FIFO, and HIFO, the cost basis is the actual cost of the specific shares that have been identified. The holding period is also the actual holding period of the specific shares that have been identified. The only difference is how the identification is done:
  • SpecID: The investor identifies shares.
  • FIFO: Vanguard's computer identifies shares in order of date acquired, oldest shares first.
  • HIFO: Vanguard's computer identifies shares in order of cost basis, highest-cost shares first.
Vanguard offers two cost basis methods that both use FIFO to select shares: average cost and FIFO. However, average cost commingles the shares and reports the average cost of all the shares, even the ones that weren't sold. FIFO keeps the shares separate and reports the actual cost basis of the shares that were sold.

You can switch between SpecID, FIFO, and HIFO at any time. All three methods preserve the cost basis and acquisition date of shares that weren't sold. You cannot switch out of average cost for shares acquired prior to a sale because you've commingled the cost basis.
rkhusky
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by rkhusky »

talzara wrote: Mon Nov 21, 2022 6:54 pm
rkhusky wrote: Mon Nov 21, 2022 6:12 pm If you choose Average Cost at Vanguard, shares are sold FIFO.
If you choose SpecID at Vanguard, shares are sold using Actual Cost.

Those are the only choices at Vanguard.
Those are not the only choices at Vanguard.
You are right. I don't recall seeing FIFO and HIFO before, but I set the cost basis method for my taxable account years ago. And, I have no idea when they added those. So, SpecID, FIFO and HIFO use Actual Cost. And Average Cost uses FIFO. Therefore, with FIFO one can now have Average Cost or Actual Cost.
talzara
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by talzara »

rkhusky wrote: Mon Nov 21, 2022 7:23 pm You are right. I don't recall seeing FIFO and HIFO before, but I set the cost basis method for my taxable account years ago. And, I have no idea when they added those. So, SpecID, FIFO and HIFO use Actual Cost. And Average Cost uses FIFO. Therefore, with FIFO one can now have Average Cost or Actual Cost.
You can only select the cost basis method. You cannot select the holding period separately.

If you select FIFO, it is always actual cost. It will never be average cost, and your choice will not be locked in.

If you want average cost, you must select average cost. Although the shares are sold in FIFO order, you cannot select FIFO because that will give you the FIFO cost basis method.
rkhusky
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by rkhusky »

talzara wrote: Tue Nov 22, 2022 9:18 pm
rkhusky wrote: Mon Nov 21, 2022 7:23 pm You are right. I don't recall seeing FIFO and HIFO before, but I set the cost basis method for my taxable account years ago. And, I have no idea when they added those. So, SpecID, FIFO and HIFO use Actual Cost. And Average Cost uses FIFO. Therefore, with FIFO one can now have Average Cost or Actual Cost.
You can only select the cost basis method. You cannot select the holding period separately.

If you select FIFO, it is always actual cost. It will never be average cost, and your choice will not be locked in.

If you want average cost, you must select average cost. Although the shares are sold in FIFO order, you cannot select FIFO because that will give you the FIFO cost basis method.
You never choose the holding period. At Vanguard, you either choose the share selection method or the cost basis method. Unfortunately, Vanguard conflates the two.

If you choose Average Cost, you are also choosing FIFO. If you choose FIFO, you are also choosing Actual Cost.

Given the linkages, you have the choice of four combos (SpecID, Actual Cost), (FIFO, Actual Cost), (LIFO, Actual Cost), and (Average Cost, FIFO).
talzara
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by talzara »

rkhusky wrote: Tue Nov 22, 2022 9:58 pm You never choose the holding period. At Vanguard, you either choose the share selection method or the cost basis method. Unfortunately, Vanguard conflates the two.

If you choose Average Cost, you are also choosing FIFO. If you choose FIFO, you are also choosing Actual Cost.

Given the linkages, you have the choice of four combos (SpecID, Actual Cost), (FIFO, Actual Cost), (LIFO, Actual Cost), and (Average Cost, FIFO).
Every major brokerage does this, not just Vanguard.

That's because average cost is the only one that's different. Every other cost basis method is actual cost. Why make the customer answer two questions when they could answer one? There's no ambiguity.
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by arcticpineapplecorp. »

Messner8000 wrote: Sun Nov 20, 2022 7:48 am Thanks for the tip. It looks like VTSAX hasn't done dividend reinvestment in the last 30 days, and since I haven't made any purchases, it seems I could sell the shares now (and then I guess if I disabled dividend reinvestment I guess I could try to TLH...)
vtsax distributes dividends in March, June, Sept, and Dec.

source: https://investor.vanguard.com/investmen ... tributions
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rkhusky
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by rkhusky »

talzara wrote: Wed Nov 23, 2022 7:13 pm
rkhusky wrote: Tue Nov 22, 2022 9:58 pm You never choose the holding period. At Vanguard, you either choose the share selection method or the cost basis method. Unfortunately, Vanguard conflates the two.

If you choose Average Cost, you are also choosing FIFO. If you choose FIFO, you are also choosing Actual Cost.

Given the linkages, you have the choice of four combos (SpecID, Actual Cost), (FIFO, Actual Cost), (LIFO, Actual Cost), and (Average Cost, FIFO).
Every major brokerage does this, not just Vanguard.

That's because average cost is the only one that's different. Every other cost basis method is actual cost. Why make the customer answer two questions when they could answer one? There's no ambiguity.
Fidelity is the only one that seems to recognize the difference between share selection and cost basis:
https://www.fidelity.com/tax-informatio ... cost-basis
The above page lists 12 disposal methods.

I've read that Schwab defaults to Average Cost/FIFO and it's somewhat difficult to switch to something else, especially SpecID.
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Re: First Time Selling - Sell Certain (losing) Lots but Don't TLH?

Post by Katietsu »

Messner8000 wrote: Sun Nov 20, 2022 7:36 amand I worry they'll be something I'll miss and will have a wash sale or other violation.

Thanks!
A wash sale is not a violation. And you do not even need to keep track of it since the brokerage does it for you. (Assuming covered shares with both sales and buys in same account.)

Yes, turn off dividend reinvestment and sell the shares as to avoid a wash sale. But, if it happens, not a big deal.
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