hondo
Commander
Posts: 145
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Post by hondo on Mar 4, 2022 20:37:35 GMT
I learned something new about Cost Basis at Vanguard. Say you open a fund using the Average Cost basis. Then some period of time later, you change the cost basis method to the Specific Lot method. Even after the change, any shares you bought under the Average Cost basis can only be sold using the Average Cost basis. The Average Cost will not be changed to Specific Lot when you sell. I sold some shares using Specific Lot, expecting a small loss, instead Vanguard sold them using Average Cost since they were bought using Average Cost. Results is a capital gain.
I spoke with four reps via voice and email to no avail. I have owned shares of this fund for a number of years and this was the first sell I had made. Since this was the very first sell made from this account, I can not understand why they could not change the cost basis method back to the first buy. They said it was a IRS rule and all investment companies must do the same, but I don't know if that is true. The reps I spoke with on the telephone sounded like they were not sure of what they were saying.
Most of you may already know how the cost basis works, but I thought I would mention it for those who could possible get into the same situation I did. The good side for me is that it was a small sell and the gain was small. |
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Post by yogibearbull on Mar 6, 2022 3:57:39 GMT
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Post by retiredat48 on Mar 6, 2022 22:56:15 GMT
Yogi...a question. Does your word "prospectively" mean going forward?
Put another way, If I have never sold a Vanguard Fund share for four decades (and years ago Vgd does not have avg cost basis), can I not sell my INITIAL purchase (let's say 100 shares), and not use avg cost basis, but "specific lot" method.
Vanguard clearly reports price of shares sold; but is avg cost basis even in computers at IRS??
TIA
R48
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Post by nobhead on Mar 6, 2022 23:48:45 GMT
Yogi...a question. Does your word "prospectively" mean going forward? Put another way, If I have never sold a Vanguard Fund share for four decades (and years ago Vgd does not have avg cost basis), can I not sell my INITIAL purchase (let's say 100 shares), and not use avg cost basis, but "specific lot" method. Vanguard clearly reports price of shares sold; but is avg cost basis even in computers at IRS?? TIA R48
When I went to change my cost basis settings at Vanguard, I got this as a reason at the Vanguard site:
Average cost for noncovered shares
For shares acquired before January 1, 2012, Vanguard can only provide average cost information
When you sell mutual fund shares acquired before January 1, 2012 (noncovered shares), Vanguard will only be able to provide average cost information to you. That's because we won't know which cost basis method you might have used to report gains and losses to the IRS in the past, or which tax lots remain in your account if you sold some of the shares before 2012. It's important that you have accurate cost basis records for your noncovered shares, because you'll be responsible for reporting to the IRS any gains and losses on sales of these shares.
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Post by yogibearbull on Mar 7, 2022 0:17:34 GMT
retiredat48, Fairmark used the terms prospective (for future/going forward) and retroactive (going backward). When I posted, I checked the meaning of prospective to be sure. Many funds (including Vanguard) provide average-cost info by default. The trap is if you have used that method even once to sell and report. Then the rules for change become tricky. But if you have NEVER sold shares, you may be able to use specific-lot method if you have kept good records. As nobhead mentioned, Vanguard doesn't provide that record. The IRS does get 1099-B with some cost-basis reporting, and if there is a mismatch, the IRS may ask for explanation. That Fairmark link discusses noncovered/pre-2012 and covered shares.
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Post by retiredat48 on Mar 7, 2022 4:22:21 GMT
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Post by anovice on Mar 7, 2022 10:36:50 GMT
retiredat48 , Fairmark used the terms prospective (for future/going forward) and retroactive (going backward). When I posted, I checked the meaning of prospective to be sure. Many funds (including Vanguard) provide average-cost info by default. The trap is if you have used that method even once to sell and report. Then the rules for change become tricky. But if you have NEVER sold shares, you may be able to use specific-lot method if you have kept good records. As nobhead mentioned, Vanguard doesn't provide that record. The IRS does get 1099-B with some cost-basis reporting, and if there is a mismatch, the IRS may ask for explanation. That Fairmark link discusses noncovered/pre-2012 and covered shares. I went on the Vanguard website and signed into my account where I hold Vanguard Short-Term Tax-Exempt Bond Fund. I have both covered and noncovered shares. I have never sold shares in this fund. While it allows me to select SpecID as the basis method, under "Date acquired" it will only populate with "Various" ("Cost basis for shares acquired before January 1, 2012 ("noncovered shares") will not be reported to the IRS by Vanguard, and appear in one row as "Various"). It will not populate with specific lots even after January 1, 2012. When I take it further and put a number of shares to sell, it populates with a "Total estimate gain/loss" number. I gather this average-cost, although the only cost basis methods that the site allows me to pick for this fund are FIFO, HIFO, and SpecID. |
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hondo
Commander
Posts: 145
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Post by hondo on Mar 7, 2022 23:44:15 GMT
Thanks for the reply. I had already accepted that they must be right, but it is nice to have it confirmed by someone like you. Thanks again. |
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