Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
Hello Boglefriends
I could use help in figuring out what, if anything, I need to do to ensure that my lot purchase /basis history is accurate prior to transferring assets out of Vanguard.
This pertains to purchases of VTSMX (now VTSAX) in a Vanguard brokerage (formerly mutual fund) account. I started purchasing VTSMX back starting in 2007 and continued every year since. I set the account/fund up with SpecID so that I could select specific lots whenever I was ready to sell.
In 2010, I needed money, and since I was in the 0% long term cap gains bracket that year, I strategically tax-gain harvested from this fund by identifying 6 lots with the most gain and selling those. As for how that process occurred: while I can’t recall if vanguard’s website showed the lot-level breakdown (I don’t think it did, since this was before 2012), I had kept lot-level records in my own spreadsheet. I called up Vanguard and walked them through the specific lots (by purchase date) that I wanted to sell. They sold those shares and generated a letter that they snail-mailed me that describes the transaction with each of the dates/lots shown. I filed my taxes that year and used that lot-level info (as opposed to average cost method) as the basis for my capital gains.
So far so good.
The years went on and I kept investing in the fund. At some point I “converted” to the admiral share class VTSAX. I always kept the setting as SpecID. At some point the platform was converted from a mutual fund account to a brokerage platform.
Fast forward to today and here is what I see on Vanguard’s website when I got to the Cost Basis screen:
The main line for VTSAX (before I hit the “show lot details” breakdown) shows specID as the cost basis method and shows my total number of shares. When I hit the button “show lot details”, here is what I see:
All shares/lots purchased after Jan. 1, 2012 (covered shares) show lot-level breakdown. All looks good.
All remaining shares purchased before 2012 (non-covered shares) are shown as a single line. Under date acquired, it says “various” and a single “cost per share” is shown. There is a message box that says “For shares acquired prior to Jan 1, 2012, Vanguard has only average cost information available.” Obviously this “avg cost per share” differs from my actual basis because I hand-picked lots to sell back in 2010. Consequently, the columns for “total cost” and “total long term gains” are inaccurate because they don’t reflect the specific lot selections of my sale in 2010.
My questions are:
1. Is this display what you would expect to see given the history I described? It not, what would you expect to see? And how do I go about getting it corrected/updated?
2. If, per question #1, it all seems correct, am I good to continue to use the SpecID method on those older non-covered shares?
3. If I were to transfer all of my VTSAX holdings to another brokerage, how would this cost basis history/info transfer?
4. If I were to transfer all of my VTSAX holdings to another brokerage, is there a risk that the lot-level history with Vanguard would get “lost” in the transfer and imperil or complicate my ability to continue using SpecID for future sales of non-covered shares?
Thank you for your help!
I could use help in figuring out what, if anything, I need to do to ensure that my lot purchase /basis history is accurate prior to transferring assets out of Vanguard.
This pertains to purchases of VTSMX (now VTSAX) in a Vanguard brokerage (formerly mutual fund) account. I started purchasing VTSMX back starting in 2007 and continued every year since. I set the account/fund up with SpecID so that I could select specific lots whenever I was ready to sell.
In 2010, I needed money, and since I was in the 0% long term cap gains bracket that year, I strategically tax-gain harvested from this fund by identifying 6 lots with the most gain and selling those. As for how that process occurred: while I can’t recall if vanguard’s website showed the lot-level breakdown (I don’t think it did, since this was before 2012), I had kept lot-level records in my own spreadsheet. I called up Vanguard and walked them through the specific lots (by purchase date) that I wanted to sell. They sold those shares and generated a letter that they snail-mailed me that describes the transaction with each of the dates/lots shown. I filed my taxes that year and used that lot-level info (as opposed to average cost method) as the basis for my capital gains.
So far so good.
The years went on and I kept investing in the fund. At some point I “converted” to the admiral share class VTSAX. I always kept the setting as SpecID. At some point the platform was converted from a mutual fund account to a brokerage platform.
Fast forward to today and here is what I see on Vanguard’s website when I got to the Cost Basis screen:
The main line for VTSAX (before I hit the “show lot details” breakdown) shows specID as the cost basis method and shows my total number of shares. When I hit the button “show lot details”, here is what I see:
All shares/lots purchased after Jan. 1, 2012 (covered shares) show lot-level breakdown. All looks good.
All remaining shares purchased before 2012 (non-covered shares) are shown as a single line. Under date acquired, it says “various” and a single “cost per share” is shown. There is a message box that says “For shares acquired prior to Jan 1, 2012, Vanguard has only average cost information available.” Obviously this “avg cost per share” differs from my actual basis because I hand-picked lots to sell back in 2010. Consequently, the columns for “total cost” and “total long term gains” are inaccurate because they don’t reflect the specific lot selections of my sale in 2010.
My questions are:
1. Is this display what you would expect to see given the history I described? It not, what would you expect to see? And how do I go about getting it corrected/updated?
2. If, per question #1, it all seems correct, am I good to continue to use the SpecID method on those older non-covered shares?
3. If I were to transfer all of my VTSAX holdings to another brokerage, how would this cost basis history/info transfer?
4. If I were to transfer all of my VTSAX holdings to another brokerage, is there a risk that the lot-level history with Vanguard would get “lost” in the transfer and imperil or complicate my ability to continue using SpecID for future sales of non-covered shares?
Thank you for your help!
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
Noncovered shares are shown as one lot. Vanguard will provide you the average cost, but that won’t be provided to the IRS. It’s on you to either go with Vanguard’s numbers or use your own records. When you sell noncovered shares with SpecID, you are supposed to let Vanguard know which shares you are selling.
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
1. Yes, from Vanguard. But I will write that other mutual funds that I own from 1982 to 2012 had all info for SpecID. Vanguard never did.
2. Yes, you can still specify shares to sell "Versus Purchase" if you give the date acquired before the trade settles. That is you specifically identify the shares to be sold.
3. Vanguard did not keep the original cost basis, so it would not transfer.
4. Vanguard will not lose "lot level history" for shares acquired in 2012 and later. It doesn't have the history for before that, so it cannot lose it. YOU have that history and will need to use it, so don't lose it.
If you sold shares like you said you did and filled out a Form 1040 Schedule D, then this is all old hat to you. Probably only in an audit would you be required to document whatever cost basis you put for non-covered shares on your Schedule D. Everybody did it that way before 2012. so it would not be unusual.
2. Yes, you can still specify shares to sell "Versus Purchase" if you give the date acquired before the trade settles. That is you specifically identify the shares to be sold.
3. Vanguard did not keep the original cost basis, so it would not transfer.
4. Vanguard will not lose "lot level history" for shares acquired in 2012 and later. It doesn't have the history for before that, so it cannot lose it. YOU have that history and will need to use it, so don't lose it.
If you sold shares like you said you did and filled out a Form 1040 Schedule D, then this is all old hat to you. Probably only in an audit would you be required to document whatever cost basis you put for non-covered shares on your Schedule D. Everybody did it that way before 2012. so it would not be unusual.
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Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
1. What is displayed is what I would expect.
2. It is up to you to keep track of the basis of non-covered shares. The basis method you tell a brokerage to use applies only to covered shares. However, a brokerage can use the method for covered shares to determine whether non-covered or covered shares are sold first, when specific shares are not identified.
3. The current brokerage will transfer to the receiving brokerage basis data equivalent to what the current brokerage displays to you.
4. There is a risk that something goes wrong with a transfer. With non-covered shares, it is up to you to keep track of the basis, such as by keeping the documents for each purchase and sale of non-covered shares, including written acknowledgement about specific shares that were sold.
2. It is up to you to keep track of the basis of non-covered shares. The basis method you tell a brokerage to use applies only to covered shares. However, a brokerage can use the method for covered shares to determine whether non-covered or covered shares are sold first, when specific shares are not identified.
3. The current brokerage will transfer to the receiving brokerage basis data equivalent to what the current brokerage displays to you.
4. There is a risk that something goes wrong with a transfer. With non-covered shares, it is up to you to keep track of the basis, such as by keeping the documents for each purchase and sale of non-covered shares, including written acknowledgement about specific shares that were sold.
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
If specific shares are not identified, then tax laws say the shares were sold FIFO (first-in, first-out). That goes for both Average Cost and for Specific Identification and covered and non-covered shares. However, for Average Cost one cannot specify anything but FIFO anyways. See IRS Publication 550. That is, the brokeage can only use one single method, namely FIFO, for the shares sold if the client doesn't specifically identify shares sold.FactualFran wrote: Mon Feb 03, 2025 1:28 pmHowever, a brokerage can use the method for covered shares to determine whether non-covered or covered shares are sold first, when specific shares are not identified.
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Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
What tax law states that when there are both non-covered and covered shares of an identical security that, by default, non-covered shares are sold first?livesoft wrote: Mon Feb 03, 2025 1:32 pmIf specific shares are not identified, then tax laws say the shares were sold FIFO (first-in, first-out). That goes for both Average Cost and for Specific Identification and covered and non-covered shares. However, for Average Cost one cannot specify anything but FIFO anyways. See IRS Publication 550. That is, the brokeage can only use one single method, namely FIFO, for the shares sold if the client doesn't specifically identify shares sold.FactualFran wrote: Mon Feb 03, 2025 1:28 pmHowever, a brokerage can use the method for covered shares to determine whether non-covered or covered shares are sold first, when specific shares are not identified.
Regulations, such as 26 CFR 1.1012-1(e)(2)(i) use the term "the broker's default method", without any indication that the broker's default method is required to be first-in first-out.
That is a regulation, rather than a law. Regulations contain details about how the executive branch of the federal government applies laws. With covered shares of mutual funds that I have owned, the broker's default method has been average basis, not FIFO.
According to a Average basic method illustrated section of IRS Publication 550: "To determine your holding period, the shares disposed of are considered to be those acquired first." The wording is not "first-in first-out". First-in first-out (FIFO) is a cost basis method described earlier in an enclosing section (Special Rules for Mutual Funds).
When shares are disposed, determining the basis and determining the holding period are different determinations. To keep the two distinct, it is helpful to not use the same term, such as FIFO, with both.
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
"the shares disposed of are considered to be those acquired first". that is another description for FIFO.FactualFran wrote: Tue Feb 04, 2025 11:25 am According to a Average basic method illustrated section of IRS Publication 550: "To determine your holding period, the shares disposed of are considered to be those acquired first." The wording is not "first-in first-out". First-in first-out (FIFO) is a cost basis method described earlier in an enclosing section (Special Rules for Mutual Funds).
When shares are disposed, determining the basis and determining the holding period are different determinations. To keep the two distinct, it is helpful to not use the same term, such as FIFO, with both.
FIFO is not a cost basis method. It is a share identification method. And if you don't like the word "identificaiton", then it is a share designation method.
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Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
Re: the part I bolded above:livesoft wrote: Tue Feb 04, 2025 2:24 pm"the shares disposed of are considered to be those acquired first". that is another description for FIFO.FactualFran wrote: Tue Feb 04, 2025 11:25 am According to a Average basic method illustrated section of IRS Publication 550: "To determine your holding period, the shares disposed of are considered to be those acquired first." The wording is not "first-in first-out". First-in first-out (FIFO) is a cost basis method described earlier in an enclosing section (Special Rules for Mutual Funds).
When shares are disposed, determining the basis and determining the holding period are different determinations. To keep the two distinct, it is helpful to not use the same term, such as FIFO, with both.
FIFO is not a cost basis method. It is a share identification method. And if you don't like the word "identificaiton", then it is a share designation method.
For mutual funds, IRS Publication 550 says to use "either a cost basis or an average basis" to determine the gain/loss on sale. If using a cost basis, the publication says to use one of two methods to figure that cost basis: specific share identification or FIFO (first-in, first-out).
https://www.irs.gov/publications/p550#e ... 1000250006
Based on that, FIFO is indeed a cost basis method, at least in the sense the other poster is using the term.
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
One will get a different number for the cost when one uses FIFO if the Cost Basis Method is Specific Identification or if the Cost Basis Method is Average Cost when there are multiple purchase dates at different prices [and not all shares are sold].Joe Public wrote: Tue Feb 04, 2025 3:58 pmBased on that, FIFO is indeed a cost basis method, at least in the sense the other poster is using the term.
Last edited by livesoft on Tue Feb 04, 2025 7:44 pm, edited 2 times in total.
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
Federal regulations have the force of law (see, for example, https://blogs.loc.gov/law/2014/11/how-t ... rch-guide/).FactualFran wrote: Tue Feb 04, 2025 11:25 amWhat tax law states that when there are both non-covered and covered shares of an identical security that, by default, non-covered shares are sold first?livesoft wrote: Mon Feb 03, 2025 1:32 pm
If specific shares are not identified, then tax laws say the shares were sold FIFO (first-in, first-out). That goes for both Average Cost and for Specific Identification and covered and non-covered shares. However, for Average Cost one cannot specify anything but FIFO anyways. See IRS Publication 550. That is, the brokeage can only use one single method, namely FIFO, for the shares sold if the client doesn't specifically identify shares sold.
Regulations, such as 26 CFR 1.1012-1(e)(2)(i) use the term "the broker's default method", without any indication that the broker's default method is required to be first-in first-out.
That is a regulation, rather than a law. Regulations contain details about how the executive branch of the federal government applies laws. With covered shares of mutual funds that I have owned, the broker's default method has been average basis, not FIFO.
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Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
FIFO is a cost basis method according to the IRS. Open the link to the Special Rules for Mutual Funds section of IRS Publication 550 that was in my post. The Cost Basis subsection of that section lists "First-in first-out (FIFO)" as one of the cost basis methods.livesoft wrote: Tue Feb 04, 2025 2:24 pm"the shares disposed of are considered to be those acquired first". that is another description for FIFO.FactualFran wrote: Tue Feb 04, 2025 11:25 am According to a Average basic method illustrated section of IRS Publication 550: "To determine your holding period, the shares disposed of are considered to be those acquired first." The wording is not "first-in first-out". First-in first-out (FIFO) is a cost basis method described earlier in an enclosing section (Special Rules for Mutual Funds).
When shares are disposed, determining the basis and determining the holding period are different determinations. To keep the two distinct, it is helpful to not use the same term, such as FIFO, with both.
FIFO is not a cost basis method. It is a share identification method. And if you don't like the word "identificaiton", then it is a share designation method.
That publication contains "share identification" only as part of the term "specific share identification", which is another cost basis method. That publication does not contain the word "designation".
When discussing income tax, it is a good idea to use terms as they are used by the tax agency, the IRS in this matter. It does not matter whether one does or does not like words that the IRS uses.
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
You can use FIFO with Average Cost or Actual Cost, so it's really share identification. IRS pubs sometimes have errors or are missing information.
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Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
There is nothing wrong with different basis methods giving different basis amounts for a sale of fewer than all shares. Cost basis and average basis can give different basis amounts for a sale. Different cost basis methods can give different basis amounts for a sale. When average basis had the double-category method in addition to the single-category method, different average basis methods could give different basis amounts for a sale.livesoft wrote: Tue Feb 04, 2025 5:43 pmOne will get a different number for the cost when one uses FIFO if the Cost Basis Method is Specific Identification or if the Cost Basis Method is Average Cost when there are multiple purchase dates at different prices [and not all shares are sold].Joe Public wrote: Tue Feb 04, 2025 3:58 pmBased on that, FIFO is indeed a cost basis method, at least in the sense the other poster is using the term.
Re: Vanguard Non-Covered Shares and issue with AvgCost vs Spec ID
Is HILO a cost basis method? How about HIFO and LIFO ... are they cost basis methods?