Author Topic: Ways around FIFO if passed by Congress  (Read 1019 times)

Mighty-Dollar

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Ways around FIFO if passed by Congress
« on: November 20, 2017, 12:53:22 AM »
FIFO = First in, first out
I'm hearing this talk about congress eliminating the ability to sell shares of stock that you bought recently (instead of farther back in time) in order to lower capital gains taxes. I'm an index fund investor, so what if I own multiple different funds? For example if I want to own an S&P 500 index fund I can dodge this law (if passed) by simply investing in SPY, VOO, IVV, MUTF.  Then if I need the cash I'll just sell the more recent fund that I invested in.
« Last Edit: November 20, 2017, 12:55:08 AM by Mighty-Dollar »

kayvent

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Re: Ways around FIFO if passed by Congress
« Reply #1 on: November 20, 2017, 03:18:49 AM »
That would work but is ethically grey. The laws on the book have been interpreted in such a way that different index funds that track the same index are not fungible. Because of that, what you describe should be possible if FIFO is introduced. (Since they arenít similar enough to trigger the wash-sale rule, they arenít similar enough to affect FIFO.)

Itís possible the government could clarify the wash-sale rule and subsequently define FIFO to work on fungible securities as well. I donít think the latter is tenable for many reasons.
« Last Edit: November 20, 2017, 03:20:37 AM by kayvent »

Mighty-Dollar

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Re: Ways around FIFO if passed by Congress
« Reply #2 on: November 20, 2017, 01:56:45 PM »
Well I own NOTHING BUT index funds. I gave up on individual stocks years ago. So hopefully their tax rules will have no effect on me.

terran

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Re: Ways around FIFO if passed by Congress
« Reply #3 on: November 20, 2017, 07:22:36 PM »
Well I own NOTHING BUT index funds. I gave up on individual stocks years ago. So hopefully their tax rules will have no effect on me.

There aren't really differences between index funds and individual stocks when in comes to cost basis. If they remove the ability to use specific identification and only allow First In First Out you will still lose flexibility in deciding which shares you'd like to sell to either minimize or maximize capital gains.

Ursus Major

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Re: Ways around FIFO if passed by Congress
« Reply #4 on: November 20, 2017, 10:29:36 PM »
What about using multiple brokerage accounts? A bit inconvenient, but doable.

TomTX

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Re: Ways around FIFO if passed by Congress
« Reply #5 on: November 21, 2017, 05:28:37 AM »
What about using multiple brokerage accounts? A bit inconvenient, but doable.

That was my first thought for this topic. A bit less convenient, but definitely doable.
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terran

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Re: Ways around FIFO if passed by Congress
« Reply #6 on: November 21, 2017, 08:56:13 AM »
What about using multiple brokerage accounts? A bit inconvenient, but doable.

That was my first thought for this topic. A bit less convenient, but definitely doable.

I'm not saying it's not legal, I really don't know either way, but I would look into that before counting on it. For example, all IRAs are treated as one for things like RMDs and ordering of withdrawals (contributions, conversions, gains, etc), which is why you need to get rid of all traditional IRAs, not just those at a particular brokerage before a backdoor roth will work. I could see taxable accounts having similar rules.

kayvent

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Re: Ways around FIFO if passed by Congress
« Reply #7 on: November 21, 2017, 08:15:29 PM »
Considering that purchases in a IRA and accounts from different brokerages can affect the wash sale rule, I'd presume this, if it went through, would equally apply to inter-account.

alexpkeaton

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Re: Ways around FIFO if passed by Congress
« Reply #8 on: November 24, 2017, 07:47:59 AM »
Considering that purchases in a IRA and accounts from different brokerages can affect the wash sale rule, I'd presume this, if it went through, would equally apply to inter-account.

Except it would be pretty unenforceable. Broker A isn't going to know what you've bought and sold at Broker B. If I bought 100 shares of XYZ at Broker A, bought another 100 XYZ and Broker B, then sold 100 shares via Broker B, somehow Broker B is supposed to get my cost basis from Broker A? And Broker A is supposed to update the cost basis in their system from Broker B?

At least with Roth IRA distributions and conversions it's self-reported. Yeah, you could probably easily cheat it and not get caught, but there's no automated reporting going on to complicate matters.