SpecID vs. Fifo

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psteinx
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SpecID vs. Fifo

Post by psteinx »

Couple questions on this:

For most of my positions, I've been using Fifo, in the past (to the extent that I've sold anything from those positions)

1a) For a covered position (Stock, ETF, or Closed End Fund (CEF)) where Fifo sales have occurred in the past, assuming the broker interface allows it, switching to SpecID is IRS-allowed, right?

(Reason for this Q is mainly I remember (or misremember?) information from an old accountant, in the days before covered/non-covered, that once you started on a basis method for selling, you had to stick with it until the position was sold out. Then if you wanted, you could restart the position and use a different method. But I think/guess that was in reference to average vs. fifo for mutual funds, rather than for specID vs. fifo, which was much harder to do/rarer back then.)

1b) Would the answer to 1a be any different for an old non-covered position, or a position with a mix of covered and non-covered shares?

===

2) It seems that at least one brokerage I work with (perhaps this is the norm everywhere) allows me to assign sales to various lots after I've sold (it's unclear when the absolute cutoff is relative to settlement).

This seems to go against my general understanding of gain/losses taxations, that the key date for a sale is (usually?) when you execute the trade. i.e. If I understand correctly, if you click "sell" on a stock on 12/31/21, and settlement is 1/2/22, the key date is the sell date, and the transaction would be considered to fall in 2021 for tax purposes. But IIUC, I could (probably?) do this trade, then log in on 1/1/22 and tweak the specific lot(s) being sold - i.e. make a change in 2022 that affects 2021 taxes.

That's not unprecedented - IIUC, IRA contributions, for example, can be made in 2022 affecting 2021 taxes, and certain transactions in early 2022 could turn a 2021 sale into a wash sale, or turn a qualified 2021 dividend into a non-qualified. But I'd like to be a little more confident that the IRS has blessed this action (specifying lots after trade execution)...
Thesaints
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Re: SpecID vs. Fifo

Post by Thesaints »

FIFO is also kind of a specific identification, with the difference that you are not identifying the shares to be sold based on tax minimization. As far as I know there is no obstacle with changing method to SpecID. The only problems are when in the past one used an average cost method.
So, I agree with you.

Concerning assigning lots after the sale, back in the days one would sell announcing that they were following a specID method and then mail the broker with a list of the actual shares sold. It seems it was possible to change your mind about which lots, but one could not change method after the fact.
livesoft
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Re: SpecID vs. Fifo

Post by livesoft »

psteinx wrote: Wed Jun 09, 2021 2:45 pm1a) For a covered position (Stock, ETF, or Closed End Fund (CEF)) where Fifo sales have occurred in the past, assuming the broker interface allows it, switching to SpecID is IRS-allowed, right?
Since stocks, ETFs, and CEF cannot have Average Cost Basis or Average Basis, then FIFO is just the same as specifically identifying the first shares in as the shares sold. If one does not (or did not) specify then the brokerage has to use sell the first shares in for you.

Switching to SpecID is allowed. Your brokerage really has nothing to do with it since you always had Spec ID on those investments whether you knew it or not. I suppose that some brokerages want you to have a "Default method to identify shares sold" and that method is FIFO according to the IRS anyways.
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livesoft
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Re: SpecID vs. Fifo

Post by livesoft »

psteinx wrote: Wed Jun 09, 2021 2:45 pm1b) Would the answer to 1a be any different for an old non-covered position, or a position with a mix of covered and non-covered shares?
No for stocks, ETFs, and CEFs. The answer would not be different.
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livesoft
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Re: SpecID vs. Fifo

Post by livesoft »

psteinx wrote: Wed Jun 09, 2021 2:45 pm2) It seems that at least one brokerage I work with (perhaps this is the norm everywhere) allows me to assign sales to various lots after I've sold (it's unclear when the absolute cutoff is relative to settlement).
One has always had until settlement date to speVcify the shares sold. The absolute cutoff is the settlement date in the 3 non-Vanguard brokerages that I use.

I do not know what Vanguard does because at Vanguard I only have 1 investment with all shares purchased in the same single transaction on the same date, so I can only identify one single lot. That is, FIFO, LIFO, HIFO, and/or specific ID will all identify the same exact shares no matter what.
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Topic Author
psteinx
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Re: SpecID vs. Fifo

Post by psteinx »

livesoft wrote: Wed Jun 09, 2021 4:12 pm Since stocks, ETFs, and CEF cannot have Average Cost Basis or Average Basis
I'm not so sure this is true. (Not sure it's untrue, either). Pub 550, IIRC, refers to mutual funds and average cost basis. But, my recollection is that I was informed by a lawyer that the actual tax code refers to registered investment companies, and that many ETFs are RICs, as are (I think) OEFs and often CEFs.

I am not a lawyer, nor a CPA...
livesoft
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Re: SpecID vs. Fifo

Post by livesoft »

sscritic sent me this link with some pertinent Code of Federal Regulations to read:
https://www.law.cornell.edu/cfr/text/26/1.1012-1
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FactualFran
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Re: SpecID vs. Fifo

Post by FactualFran »

Specific share identification and first-in first-out (FIFO) are the two Cost Basis methods described in IRS Publication 550. One can change between the Cost Basis methods, regardless of whether the shares are covered or non-covered.

Average Basis may be used instead of Cost Basis for certain securities, such as open end mutual funds. Prior to the IRS regulations that introduced covered shares, once Average Basis was used for a security, changing to Cost Basis was not allowed for that security. With covered shares, changing from Average Basis is allowed, but only the shares acquired after the change are treated as having their actual cost. The shares held at the time of the change are treated as having a cost equal to the average basis they had prior to the change.

The IRS makes a distinction between changing from Average Basis and revoking Average Basis. A result of a revocation of Average Basis is that existing shares in the account have the basis they had before Average Basis was elected. Key conditions for a revocation is that it is done
  • within one year after electing to use Average Basis
  • before a sale, transfer, or disposition is made with Average Basis as the basis determination method.
A broker may extend the one-year period but not beyond the first disposition.
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