1

Do regulations require people to manually recalculate cost-basis across all the accounts they own, if stocks were transferred between them?

Example: Broker A cost basis setting is set to FIFO.

I got 100 shares (vested RSUs) from my employer, my broker A sold 33 of them to cover for taxes. Vesting price $40, sale price $40 - no additional gain/loss.

Then I transfer the rest of 67 shares to broker B "as is".

Later the same year, I get 100 shares, my broker A sold 33 of them for taxes. Vesting price $45, sale price $45 - no additional gain/loss.

My broker A reports in 1099-B zero capital gain, because as far as he concerned, he sold FIFO.

However, if FIFO applies across all accounts, then second sale should have counted as $5 gain per share.

Am I required to re-calculate the second sale myself as a profitable one?

(My guess is "no" because that will render 1099-B wrong. In this case IRS wins but I suspect that reported loss this way would raise questions. Besides, it means that I am bound to do this recalculation for all future sales done by broker A or B.

Also, transfers between accounts with different cost basis methods would make no sense.)

2

You decide on a cost bases attribution yourself, per transaction (except for averaging for mutual funds, which if I remember correctly applies to all the positions). It is not a decision your broker makes. Broker only needs to know what you've decided to report it to the IRS on 1099, but if the broker reported wrong basis (because you didn't update your account settings properly, or for whatever else reason) you can always correct it on form 8949 (columns f/g).

  • I understand that, and I haven't make any decision during those sales, so my broker went with FIFO (default setting). How about another thought - once I transferred the stock, there is no more ambiguity which stock I sold the second time. So I don't need to pretend that I sold the stock from the first vesting, because it's on the different account and counted separately. – alexandroid Mar 29 '14 at 1:35
  • @alexandroid you don't need to pretend anything at all, in any case. I'm not sure I understand your concern. – littleadv Mar 29 '14 at 2:46
  • My question came from misunderstanding (trying to understand) what cost basis applies to. – alexandroid Apr 17 '14 at 7:54
  • 1
    My question came from misunderstanding (trying to understand) what cost basis applies to. Now I get it that it applies to stocks as physical entities. Consider a chain of buys of 40 stock A with prices $1-$4-$10-$15 (qty 10 each time) then IRS wants to know exactly which stock I am selling. And when I transfer stocks to different account, that cost basis transfers with them. Cost basis is included in transfers, so that removes ambiguity which stock is being sold on the original account. In the example above, cost basis of 20 stocks moved to a new account would probably be $1 x 10 and $4 x 10. – alexandroid Apr 17 '14 at 8:01
  • (i.e. FIFO also applies to transfers) – alexandroid Apr 17 '14 at 8:02
0

To sum up:

My question came from misunderstanding what cost basis applies to. Now I get it that it applies to stocks as physical entities.

Consider a chain of buys of 40 stock A with prices $1-$4-$10-$15 (qty 10 each time) then IRS wants to know exactly which stock I am selling. And when I transfer stocks to different account, that cost basis transfers with them. Cost basis is included in transfers, so that removes ambiguity which stock is being sold on the original account.

In the example above, cost basis of 20 stocks moved to a new account would probably be $1 x 10 and $4 x 10, i.e. FIFO also applies to transfers.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .