Deciding which cost basis shares to sell

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
fanoflazyportfolio
Posts: 24
Joined: Tue Jul 10, 2018 9:12 am

Deciding which cost basis shares to sell

Post by fanoflazyportfolio » Thu May 21, 2020 11:25 am

If there are multiple lots of shares that need to be sold, is it better to sell the shares that have the highest cost basis to minimize taxes?

For examples, if I have 100 shares where 50 shares are bought at 20$ and another 50 shares are bought at 10$ and currently it is trading at 15$.
If I decide to sell 50 shares, what is the best course of action?
a) Sell all the 50 shares with cost basis at 20$ and book a 250$ loss
b) Sell 25 shares@20$ and 25shares@10$ and book no loss/gain
c) Sell 25 shares @10$ and book 250$ profit

I think (a) is the best option as taxes are deferred. But wanted to get a second opinion on this.
Also, will the strategy change if the cost of the shares are 2000, 1000 and 1500 instead of 20, 10, 15 respectively, given only 3000 can be used for showing capital losses per year? In this case, there will be 25000$ losses and 22000$ will have to be carried forward. Is that a good idea?

livesoft
Posts: 72087
Joined: Thu Mar 01, 2007 8:00 pm

Re: Deciding which cost basis shares to sell

Post by livesoft » Thu May 21, 2020 11:30 am

One has to calculate the taxes. Selling shares with highest cost basis may mean ST cap gains taxes, while selling LT shares that are similar (but not highest) cost basis may mean less taxes. Sometimes one can mix shares with ST gains and LT gains as well as ST losses and LT losses.

Also sometimes one doesn't mind to pay a bit of extra taxes if it choosing multiple lots will simplify the number of lots. That is, selling lots of small lots may be more appealing than selling from a single lot.

I think carrying over losses is a good idea.
Wiki This signature message sponsored by sscritic: Learn to fish.

kaneohe
Posts: 6501
Joined: Mon Sep 22, 2008 12:38 pm

Re: Deciding which cost basis shares to sell

Post by kaneohe » Thu May 21, 2020 12:03 pm

might depend on your tax situation: if your income is low enough, LTCG are taxed at 0, so you might want to sell the low cost basis shares if the gains will still fit in that 0% bracket.

User avatar
Stinky
Posts: 4466
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Deciding which cost basis shares to sell

Post by Stinky » Thu May 21, 2020 12:11 pm

fanoflazyportfolio wrote:
Thu May 21, 2020 11:25 am
If there are multiple lots of shares that need to be sold, is it better to sell the shares that have the highest cost basis to minimize taxes?

For examples, if I have 100 shares where 50 shares are bought at 20$ and another 50 shares are bought at 10$ and currently it is trading at 15$.
If I decide to sell 50 shares, what is the best course of action?
a) Sell all the 50 shares with cost basis at 20$ and book a 250$ loss
b) Sell 25 shares@20$ and 25shares@10$ and book no loss/gain
c) Sell 25 shares @10$ and book 250$ profit

I think (a) is the best option as taxes are deferred. But wanted to get a second opinion on this.
Also, will the strategy change if the cost of the shares are 2000, 1000 and 1500 instead of 20, 10, 15 respectively, given only 3000 can be used for showing capital losses per year? In this case, there will be 25000$ losses and 22000$ will have to be carried forward. Is that a good idea?
Livesoft makes a good point above about short-term vs. long-term gains.

Assuming that all shares are either short-term or long-term, I would sell the shares with highest cost basis. By doing so, I would generate the smallest possible realized capital gain (if all shares are in an unrealized gain position) or the largest possible realized capital loss (if some or all of the shares are in an unrealized loss position).

I would have no problem carrying forward capital losses. In fact, I did some tax loss harvesting back in March, and will be carrying forward those losses for years to come.
It's a GREAT day to be alive - Travis Tritt

Topic Author
fanoflazyportfolio
Posts: 24
Joined: Tue Jul 10, 2018 9:12 am

Re: Deciding which cost basis shares to sell

Post by fanoflazyportfolio » Thu May 21, 2020 1:54 pm

Thanks.
Stinky wrote:
Thu May 21, 2020 12:11 pm

fanoflazyportfolio wrote:
Thu May 21, 2020 11:25 am
I would have no problem carrying forward capital losses. In fact, I did some tax loss harvesting back in March, and will be carrying forward those losses for years to come.
The brokerage will provide the capital gains/loss statement for the current year. How do we maintain the carrying forward losses? Is there an IRS form for carrying forward the losses?

User avatar
BL
Posts: 9461
Joined: Sun Mar 01, 2009 2:28 pm

Re: Deciding which cost basis shares to sell

Post by BL » Thu May 21, 2020 3:00 pm

How do you do your taxes? A program such as Turbo Tax or H&R Block should handle it well when you retrieve the info from previous year.

User avatar
Stinky
Posts: 4466
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Deciding which cost basis shares to sell

Post by Stinky » Thu May 21, 2020 3:04 pm

fanoflazyportfolio wrote:
Thu May 21, 2020 1:54 pm
Thanks.
Stinky wrote:
Thu May 21, 2020 12:11 pm

fanoflazyportfolio wrote:
Thu May 21, 2020 11:25 am
I would have no problem carrying forward capital losses. In fact, I did some tax loss harvesting back in March, and will be carrying forward those losses for years to come.
The brokerage will provide the capital gains/loss statement for the current year. How do we maintain the carrying forward losses? Is there an IRS form for carrying forward the losses?
The losses get carried forward from year to year on Schedule D.
It's a GREAT day to be alive - Travis Tritt

kaneohe
Posts: 6501
Joined: Mon Sep 22, 2008 12:38 pm

Re: Deciding which cost basis shares to sell

Post by kaneohe » Thu May 21, 2020 3:15 pm

https://www.irs.gov/publications/p550#e ... 1000273751

The losses get carried over on the capital loss carryover wksht.......like this one in Pub 550. You can sometimes find the same in the instructions for Sch D or the 1040.

User avatar
grabiner
Advisory Board
Posts: 27175
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Deciding which cost basis shares to sell

Post by grabiner » Thu May 21, 2020 8:59 pm

It is almost always best to sell the highest-basis shares. This gives you a smaller capital gain (or larger loss) now, and a larger gain in the future, so you pay less tax now and more tax later.

One important exception applies if you have shares with a significant short-term gain, which are taxed at a higher rate; it may be better selling for a larger long-term gain, and waiting for the short-term shares to become long-term before selling them. (But if you have capital losses to offset all your gains, it doesn't matter whether the gain is short-term or long-term.)

(edited to fix typo)
Wiki David Grabiner

Topic Author
fanoflazyportfolio
Posts: 24
Joined: Tue Jul 10, 2018 9:12 am

Re: Deciding which cost basis shares to sell

Post by fanoflazyportfolio » Sat May 23, 2020 5:11 pm

The responses here were helpful. Thanks!

Post Reply