Stategy Selling Index Fund Shares -

[pirate_wench]

Hi All,

After over a decade of socking away money in retirement accounts, I now have a taxable account I started almost a year ago, buying shares every month to two weeks. I need to sell off some of this fund to pay down my mortgage when I refinance the next couple of weeks.

My question(s) this:  how the heck should I pick which lots to sell?

All are short-term at this point, but much of it will be long term in a few months.

The newest shares are up slightly as of close today, whereas the 9,10,11 month old shares are much higher....

So, do I just go with "buy low, sell high" and lock in those gains from the older stocks, paying short-term capital gains, or do I take this opportunity to sell the more recent shares heading off losses at the pass, but not making anything?

Thanks for your input!

[jmusic]

If you're able to pick, I'd sell the highest cost shares as then the taxable event will be a loss, and you can reduce up to $3000 per year of other income at tax time.  If the loss is more, it'll just roll over to future years.

[Olde Stache]

If the accounts are at Vanguard you can elect to have your shares cost basis reported in various ways.  If you choose to have the basis reported as "Specific Identification" then Vanguard will tell you the amount of gain or loss on each purchase individually, so you can choose which lots to sell so the tax consequences are the least.  I hope this helps and the explanation is clear.  Look under cost basis method to choose.

[johnny847]

So, do I just go with "buy low, sell high" and lock in those gains from the older stocks, paying short-term capital gains, or do I take this opportunity to sell the more recent shares heading off losses at the pass, but not making anything?

You're thinking about this all wrong. Right now, your objective isn't to maximize your investment gains. Your objective is to get $30,000 (I made this up, but whatever) after taxes while using the fewest shares possible. The fewest shares possible clause is there because you want to leave as many shares as you can for the future.

If you had unrealized capital losses from some of your shares, those shares would actually be the most ideal to sell - you would get the full value of the sale proceeds because you don't owe any tax on that sale, and actually you'll be getting a tax free loan from the IRS in the form of a capital loss.

[MDM]

So, do I just go with "buy low, sell high" and lock in those gains from the older stocks

No.

If you're able to pick, I'd sell the highest cost shares as then the taxable event will be a loss, and you can reduce up to $3000 per year of other income at tax time.  If the loss is more, it'll just roll over to future years.

This.

...and johnny847 has already explained why.