Tax-loss harvesting and cost basis (SpecID v. AvgCost)

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jtboston
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Joined: Sun Mar 22, 2020 10:43 am

Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by jtboston » Sun Mar 22, 2020 10:53 am

I have a question about tax-loss harvesting and cost basis. All my shares are currently AvgCost, and I'm considering tax-loss harvesting. When I look at Vanguard's guidance, they write:

"To use tax-loss harvesting as a strategy, you must identify specific lots of shares to sell."

I take this to mean that I _have to_ be using the SpecID cost basis method to tax loss harvest. I've seen other sources say the same thing.

I don't understand why this is so. I see that for some cases, especially more complicated ones, SpecID will result in greater savings from tax-loss harvesting. But _can_ I do tax loss harvesting using AvgCost? In my own case, I have a loss on my entire position, so it seems like I would register a capital gains loss even with the AvgCost method. So my understanding is that it is typically better to use SpecID for tax loss harvesting, but that one _can_ use the AvgCost method as well. Am I missing something?

dbr
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by dbr » Sun Mar 22, 2020 12:52 pm

If you sell the entire position it does not matter what cost basis method you use.

livesoft
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by livesoft » Sun Mar 22, 2020 12:55 pm

While it should be true that if you sell ALL your shares, then the net loss will be the same, Average Cost might hide that you have some separate lots that have a gain and if sold would reduce the net loss.
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retired@50
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by retired@50 » Sun Mar 22, 2020 12:56 pm

To add just a bit to dbr's thought above,

If you don't sell the entire position, then how will anyone know which shares you sold? They won't. So, if you intend to sell less than the entire position, switch cost basis methods to spec id, then in a couple of days, after the change has been incorporated into your account, log back in and actually choose which shares to sell.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

Topic Author
jtboston
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by jtboston » Mon Mar 23, 2020 11:11 am

Thanks, everyone!

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Mullins
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by Mullins » Mon Mar 23, 2020 12:04 pm

retired@50 wrote:
Sun Mar 22, 2020 12:56 pm
if you intend to sell less than the entire position, switch cost basis methods to spec id, then in a couple of days, after the change has been incorporated into your account, log back in and actually choose which shares to sell.
If I'm not mistaken, then SpecID will apply only to shares purchased after the cost basis change has been put into effect. That's what I experienced.

retired@50
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by retired@50 » Mon Mar 23, 2020 12:08 pm

Mullins wrote:
Mon Mar 23, 2020 12:04 pm
retired@50 wrote:
Sun Mar 22, 2020 12:56 pm
if you intend to sell less than the entire position, switch cost basis methods to spec id, then in a couple of days, after the change has been incorporated into your account, log back in and actually choose which shares to sell.
If I'm not mistaken, then SpecID will apply only to shares purchased after the cost basis change has been put into effect. That's what I experienced.
My experience was that Spec ID applied to all shares purchased after Congress required enhanced record keeping back in 2011 / 2012. I switched to Spec ID a couple of years ago, and haven't had any issues. Perhaps a call to the financial custodian would help?

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

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Mullins
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by Mullins » Mon Mar 23, 2020 12:19 pm

retired@50 wrote:
Mon Mar 23, 2020 12:08 pm
Mullins wrote:
Mon Mar 23, 2020 12:04 pm
retired@50 wrote:
Sun Mar 22, 2020 12:56 pm
if you intend to sell less than the entire position, switch cost basis methods to spec id, then in a couple of days, after the change has been incorporated into your account, log back in and actually choose which shares to sell.
If I'm not mistaken, then SpecID will apply only to shares purchased after the cost basis change has been put into effect. That's what I experienced.
My experience was that Spec ID applied to all shares purchased after Congress required enhanced record keeping back in 2011 / 2012. I switched to Spec ID a couple of years ago, and haven't had any issues. Perhaps a call to the financial custodian would help?

Regards,
You're saying that after you changed your cost basis to specID around 2018, then shares which you had purchased prior to that date, at most going back to 2012, DID display their cost basis and not for example, their average cost, and you're certain of that?

Well, I did contact V about that sometime back, thank you for the suggestion, a couple of times, they said they'd look into it and nothing ever changed, and eventually somewhere I read or was informed exactly what I posted above. The OP can try and see if they experience a different result.

retired@50
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by retired@50 » Mon Mar 23, 2020 12:24 pm

Mullins wrote:
Mon Mar 23, 2020 12:19 pm
retired@50 wrote:
Mon Mar 23, 2020 12:08 pm
Mullins wrote:
Mon Mar 23, 2020 12:04 pm
retired@50 wrote:
Sun Mar 22, 2020 12:56 pm
if you intend to sell less than the entire position, switch cost basis methods to spec id, then in a couple of days, after the change has been incorporated into your account, log back in and actually choose which shares to sell.
If I'm not mistaken, then SpecID will apply only to shares purchased after the cost basis change has been put into effect. That's what I experienced.
My experience was that Spec ID applied to all shares purchased after Congress required enhanced record keeping back in 2011 / 2012. I switched to Spec ID a couple of years ago, and haven't had any issues. Perhaps a call to the financial custodian would help?

Regards,
You're saying that after you changed your cost basis to specID around 2018, then shares which you had purchased prior to that date, at most going back to 2012, DID display their cost basis and not for example, their average cost, and you're certain of that?

Well, I did contact V about that sometime back, thank you for the suggestion, a couple of times, they said they'd look into it and nothing ever changed, and eventually somewhere I read or was informed exactly what I posted above. The OP can try and see if they experience a different result.
Yes. My cost basis screen(s) showed all the lots purchased, either though dividend re-investment, or outright purchases of even dollar amounts as I typically perform. They of course showed a variety of purchase prices. The one caveat may be that I hadn't SOLD anything in quite a while, which means I never really used "average cost" in any transactions, at least that I can recall.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

UpperNwGuy
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by UpperNwGuy » Mon Mar 23, 2020 1:30 pm

dbr wrote:
Sun Mar 22, 2020 12:52 pm
If you sell the entire position it does not matter what cost basis method you use.
^^^Just do this.

FactualFran
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Re: Tax-loss harvesting and cost basis (SpecID v. AvgCost)

Post by FactualFran » Wed Mar 25, 2020 2:27 pm

It is not mandatory to use SpecID to realize a loss. However, SpecID gives more control over what the loss is for a sale. If the per share sale price is less than the per share average basis, then the sale will realized a loss using average basis.

IRS regulations about covered shares make a distinction between changing from Average Basis and revoking Average Basis. A result of changing from Average Basis is that existing shares in the account have a cost equal to the average basis they had before the change. A result of revoking Average Basis is that existing shares in the account have the cost they had before Average Basis was established for the account.

Conditions for revoking Average Basis is that it is done
  • within one year after Average Basis was established for the account,
  • before a sale, transfer, or disposition has been made using Average Basis.
A broker may extend the one-year period but not beyond the first disposition.

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