Author Topic: TLH with Highest In First Out Cost Basis method  (Read 677 times)

catccc

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TLH with Highest In First Out Cost Basis method
« on: March 27, 2023, 02:17:28 PM »
The vanguard site shows this info about TLH (https://investor.vanguard.com/investor-resources-education/taxes/offset-gains-loss-harvesting)

"To use tax-loss harvesting as a strategy, you must identify specific lots of shares to sell. And since your investment company reports information on your gains and losses on covered securities to the IRS,** it's important that everyone's on the same page about which shares are being sold.

This means you'll need to use the "specific identification" cost basis method when you sell shares. It's more work for you, but results in greater flexibility to offset taxes."


I was planning on doing some TLH but wanted to use highest in, first out.  Won't this still be specific shares?  I understand that cost basis matters in that something like average cost wouldn't work for TLH, but I don't understand why HIFO wouldn't work.  I'll probably give VG a call to confirm, but I was curious if anyone here had any input or have had success TLH with this cost basis method.

VanillaGorilla

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Re: TLH with Highest In First Out Cost Basis method
« Reply #1 on: March 27, 2023, 02:33:20 PM »
I'm not sure what the question is. When you sell shares, for TLH or otherwise, you can specify the specific lot to sell.

When tax loss harvesting, it is 100% necessary to select a specific lot to sell, and the vanguard UI lets you do that very easily. Just select "exchange funds" and exchange, say, VTSAX for VLCAX, select the shares that have a negative return, and confirm the exchange.

catccc

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Re: TLH with Highest In First Out Cost Basis method
« Reply #2 on: March 27, 2023, 04:33:51 PM »
The vanguard site says you must use Specific ID cost basis.  My question is: why won't HIFO work?  You are still selling specific purchases, you just are prioritizing them by highest price, right?

catccc

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Re: TLH with Highest In First Out Cost Basis method
« Reply #3 on: March 27, 2023, 05:07:23 PM »
Called VG.  HIFO will work bc it is a form of SpecID.

More info that might explain why I had this question.  I usually use SpecID when TLH.  This time, I don't think I can. 

I'm exchanging from my taxable investment account to my IRA.  It does let me choose the taxable investment account under the "where is the money coming from" column and it lets me choose the IRA under the "where is the money going" column, so the account types are fine for the exchange. (Also confirmed via phone w/ VG.)

But if I leave the Cost basis as SpecID, and choose lots to sell, I get this notification:
IRA contributions must be made in specific dollar amounts.  To complete this transaction, please choose Sell in Dollars and enter the dollar amount, which should be slightly less than the fund balance

I can't choose "Sell in Dollars" with SpecID.  If I change the cost basis to HIFO, I can select "Sell in Dollars."  I'm not selling specific lots, but VG is choosing specific lots (or portions of lots) based on HIFO.

Anyway, HIFO will work!



catccc

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Re: TLH with Highest In First Out Cost Basis method
« Reply #4 on: March 27, 2023, 05:51:23 PM »
Here's the documentation about HIFO being a method of SpecID:
https://personal.vanguard.com/pdf/cbsfr.pdf