Tax Loss Harvesting - sell shares based on date, etc?

[jeromedawg]

Hey all,

I was wondering if it's still possible to practice tax loss harvesting on shares that were purchased at an earlier time. I don't see any straightforward way of doing this in Fidelity - it seems like if you sell, you sell based on dollar amount or # of shares only but cannot be selective and say, for example, that you want to sell all shares purchased before a particular date. Is this possible to do? And would I likely need to call them to do this?

[MDM]

Do you not have the option to choose specific lots to sell?  That's what we did a few months ago when selling some stock held at Fidelity.

[jeromedawg]

Hmm, looks like I first have to convert my cost basis method to "Specific Shares" as it is currently "Average Cost"

Is there a setting where the Cost Basis can just be set to "Specific Shares" moving forward? Guess I'll need to chat with Fidelity about this...

[Cathy]

The Secretary of the Treasury has promulgated regulations addressing this topic in 26 CFR 1.1012-1. These regulations are allegedly authorised by 26 USC § 1012.

I was considering summarising the regulations to answer your question, but they are sufficiently complicated that it would be a lot of effort to state it precisely. Instead, I'll just invite you to read the regulations very carefully.

[jeromedawg]

I figured out where to convert the cost basis for the entire account in Fidelity and went ahead with it.

BTW Cathy, are those regulations all new? I'll try reading through them but just from quickly glancing it seems super complicated as you mention.



EDIT: I'm not going to get taxed or anything for simply converting the Average Cost Cost Basis to Specific Shares Cost Basis, am I?

[Cathy]

Assuming the regulations are lawful, they contain specific rules for determining the effect of your method change. The rules depend on when the stock was acquired, what kind of stock it is, where the stock is held, whether you had previously sold any of the stock, and a variety of other factors.

One thing to understand is that there are two separate concepts here:

• the method for determining the basis for the securities; and
• the method for determining the gain or loss on sale of the security.

Even if you successfully change (2), your change might be ineffective to change (1) depending on a variety of complicated rules. I don't have time today to write an essay on this topic. Maybe there is an article on the internet that already summarises this information accurately, although I haven't seen one.

[MDM]

If your own calculations for gain/loss agree with what you receive from Fidelity, it would be reasonable to conclude that both you and Fidelity have done things correctly. 

Possible that both you and Fidelity would have miscalculated in the same way?  Sure, but....

If you and Fidelity get significantly different numbers, then you have more cause for concern.

[Terrestrial]

I've never had an account with Fidelity so I can't comment specifically on how it is done there, but with my brokerage I don't pick specific lots.  It lets you select the 'method' which i would like my share sold and figures it out from there (FIFO/LIFO/Highest basis/lowest basis/etc). When selling for tax loss harvesting I generally select highest basis and call it a day.

[forummm]

EDIT: I'm not going to get taxed or anything for simply converting the Average Cost Cost Basis to Specific Shares Cost Basis, am I?

I'm not an expert at this because I don't sell shares, even for TLH, but my understanding is that if you haven't ever sold shares from this fund in this account before, you are able to change your basis method without triggering any tax problem. I think once you pick a basis and sell, either you are locked in to that basis or changing is more difficult. Again, you should do some reading on this topic on your own or consult a tax professional. I'm sure the IRS has this info on their website, even if it requires some effort to read it.

[a1smith]

EDIT: I'm not going to get taxed or anything for simply converting the Average Cost Cost Basis to Specific Shares Cost Basis, am I?

I'm not an expert at this because I don't sell shares, even for TLH, but my understanding is that if you haven't ever sold shares from this fund in this account before, you are able to change your basis method without triggering any tax problem. I think once you pick a basis and sell, either you are locked in to that basis or changing is more difficult. Again, you should do some reading on this topic on your own or consult a tax professional. I'm sure the IRS has this info on their website, even if it requires some effort to read it.

Just looking at the math, your average cost basis is calculated using all of your purchases (including reinvested dividends and capital gains).  So, if you have sold some shares and used average cost basis and then convert the math won't work out; some adjustment would have to be made to make the gains/losses work out properly.  I don't know how that scenario is covered in the regulations.  As mentioned above, if you haven't sold any shares yet then it should not be a problem to switch since the math works out fine.

[jeromedawg]

EDIT: I'm not going to get taxed or anything for simply converting the Average Cost Cost Basis to Specific Shares Cost Basis, am I?

I'm not an expert at this because I don't sell shares, even for TLH, but my understanding is that if you haven't ever sold shares from this fund in this account before, you are able to change your basis method without triggering any tax problem. I think once you pick a basis and sell, either you are locked in to that basis or changing is more difficult. Again, you should do some reading on this topic on your own or consult a tax professional. I'm sure the IRS has this info on their website, even if it requires some effort to read it.

Just looking at the math, your average cost basis is calculated using all of your purchases (including reinvested dividends and capital gains).  So, if you have sold some shares and used average cost basis and then convert the math won't work out; some adjustment would have to be made to make the gains/losses work out properly.  I don't know how that scenario is covered in the regulations.  As mentioned above, if you haven't sold any shares yet then it should not be a problem to switch since the math works out fine.

Thanks! The only thing I've done, I *think*, is to sell one fund completely and use the money to buy new shares of another fund. But again, that was prior to looking into conversion from avg to specific shares, and I fully sold that fund. Otherwise, I've pretty much just been buying and holding shares. I only sold that entire fund to take advantage of TLH but dump it and invest it in another fund completely.