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For mutual fund shares -

An individual investor has bought shares of a fund over time, including in previous years and within the last year.

If selling, can they use specific-ID cost basis to sell the shares bought in previous years and take long-term gains rather than short-term gains?

Or, would they be required to report short-term gains since shares were purchased within a year?

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In the US, you can designate to your broker which shares are to be sold. If the lots are not designated , your broker will sell the stocks bought the earliest (FIFO or First In, First Out). For mutual funds and certain DRIPS, an average cost per share can be used to determine gain P&L but you can't flip flop back and forth once averaging is chosen.

If this is done verbally, get a written confirmation from your broker to confirm the specific shares that were sold.

Make sure that if you are selling a lot for a loss than there wasn't another purchase within the 60 day window before and after the date of the realized loss. Otherwise, you'll trigger a wash sale violation.

Here's a page full of FAQs from Fidelity regarding Trading Specific Shares.

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  • Thanks. "Wash sale" seems to be what I was thinking of, and looks like it would only apply to losses - I should be able to designate lots and choose the approach with the least tax impact.
    – Kenny
    Aug 9, 2020 at 3:10
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Ask your broker what natural method they employ. FIFO (first in, first out) is logical, and would address your concern.

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