Regarding FIFO vs. Avg. Cost Basis on Funds
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Regarding FIFO vs. Avg. Cost Basis on Funds It doesn't matter in tax-deferred accounts since there are no capital gains
in those accounts. Any distributions will be taxed based on the value of the
distribution reduced by any allocation of basis in the account to that
distribution. Note that basis in a tax-deferred account is not your cost basis
in a security, but the amount of after-tax dollars that were used to fund
the account.
Ira Smilovitz
In a message dated 2/7/2012 10:15:24 A.M. Eastern Standard Time,
garbagecop@gmail.com writes:
Thanks guys! One less thing to worry about! Lynn O. Speaking of individual accounts, I read on the fidelity agreement that when you switch to FIFO that you have to switch over for all your accounts. I am not sure whether this is so for accounts at the same brokerage or whether this applies to accounts at all brokerages. I did confirm that accounts registered jointly are treated separate from individual accounts when it comes to using the same basis accounting, but I am not sure for individual, whether it applies to all accounts anywhere or just at the same brokerage house. I am waiting patiently for an answer from the IRS. From: Lynn Ostrem <garbagecop@gmail.com> To: club_cafe@bivio.com Sent: Tuesday, February 7, 2012 7:29 AM Subject: Re: [club_cafe] Regarding FIFO vs. Avg. Cost Basis on Funds Thanks guys! One less thing to worry about! Lynn O.
Dear Linda, I am not familiar with Fidelity but the other brokerages I have researched allow you to have a different cost basis method for Stocks than you have for Mutual funds and ETS's. In fact, the IRS allows different defaults. If you have accounts at different brokerages, you do not have to have the same cost basis method picked at all of them, at least going forward, for investments covered by the new reporting requirements. For mutual funds prior to the beginning of 2012 this was not the case. See the answer to question 50 here: http://www.irs.gov/taxpros/article/0,,id=237099,00.html For a club, things get more complicated when it comes to mutual funds if you get into using average basis. That is why we are recommending that you make sure to stick with the specific identification method that we've been using all along which is First In First Out. You'll need to specifically tell your broker to use this for mutual funds. Most are using average basis as the default choice. -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Laurie, I read question #50. This is exactly what my question was. For mutual funds owned in separate accounts, do they have to have the same basis method? It sounds like as of Jan 1, 2012, they do not have to have the same basis method regardless of the purchase date of the shares of mutual fund. So if I've never sold any shares of mutual fund owned prior to Jan 1, 2012 but sold after Jan 1, 2012, I should be able to use a different accounting system for each account that holds that particular mutual fund, correct? Linda From: Laurie Frederiksen <laurie@bivio.biz> To: club_cafe@bivio.com Sent: Tuesday, February 7, 2012 8:18 AM Subject: Re: [club_cafe] Regarding FIFO vs. Avg. Cost Basis on Funds Dear Linda, I am not familiar with Fidelity but the other brokerages I have researched allow you to have a different cost basis method for Stocks than you have for Mutual funds and ETS's. In fact, the IRS allows different defaults. If you have accounts at different brokerages, you do not have to have the same cost basis method picked at all of them, at least going forward, for investments covered by the new reporting requirements. For mutual funds prior to the beginning of 2012 this was not the case. See the answer to question 50 here: http://www.irs.gov/taxpros/article/0,,id=237099,00.html For a club, things get more complicated when it comes to mutual funds if you get into using average basis. That is why we are recommending that you make sure to stick with the specific identification method that we've been using all along which is First In First Out. You'll need to specifically tell your broker to use this for mutual funds. Most are using average basis as the default choice. -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio On Tue, Feb 7, 2012 at 11:56 AM, Linda Lee wrote: If you've never sold any of the shares of a fund you've owned, you can still use whatever method you'd like when you sell shares purchased prior to 2012. However, your choice of method for the pre-2012 shares will then affect any other account you also hold pre-2012 shares in.
No. Not for shares you have purchased starting in 2012.
This is where it gets really complicated with mutual funds. In the past, once you sold some shares, whatever cost basis method you used to determine your gain or loss was the one you had to stick with for subsequent sales unless you applied to the IRS and had a good reason to change. Any sale affected all the shares of the same fund you held in all your accounts. The new cost basis reporting rules will result in many pages of reporting on your tax forms if you own both what are called covered (purchased after the new reporting rules take effect) and uncovered (purchased prior to the new rules) securities. Just to add another complication, your broker only has to report wash sales to you for the same securities held at their brokerage. If you hold the same investment in two different places and your sales trigger a wash sale, you will need to report it correctly, even if it's not reported to you on either of the brokerage statements. It gets very complicated very fast and the exact specifics of how it will play out will be different for each persons situation. Your best bet is to work through your specific invesetments with someone who is familiar with how all the new laws work. -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio |
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