Buy and sell rules

No need to be consistent here.

Example:

Sell 100sh XYZ today using specific identification.

Tomorrow you sell another 100sh of XYZ, and neglect to do any specific identification. By default, you have sold the oldest shares, so they have been identified.

Had you asked about mutual fund shares, there is a consistency rule that says once you use averaging for a mutual fund, you stick with averaging so long as you have that same fund, and need only stick to averaging for just that one fund.

Thanks, Art. That is what I thought.

Not that I would ever expect logic and the tax code coincide, but what is the reason for the consistency rule for mutual funds?

Referring to a previous thread, is the bond amortization rule similar to the mutual fund rule or does it apply to all bonds?

Dick

This rule should make perfectly good sense to you, especially if you track total basis instead of per-share basis. Consider the following example.

You buy 100 shares at $1 and later buy 100 shares at $10. The total basis is $1100.

Later you sell 100 shares with a total average basis of $550, leaving a total of $550 basis in the remaining 100 shares. But bases on FIFO order, you actually sold the first 100 shares.

When you sell the remaining 100 shares, if you used their actual basis, the $1000 total basis would overstate the remaining basis.

Moreover, you would understate the total capital gain, resulting in paying less tax unfairly.

Because once you have used an averaging method for a fund, you have contaninated the actual cost basis of all shares of that fund.

Try it. You'll see that you can't go home again, so to speak.

I believe it is an all or none election but don't quote me here.

| >Referring to a previous thread, is the bond amortization | >rule similar to the mutual fund rule or does it apply to | >all bonds? | | | I believe it is an all or none election but don't quote | me here.

Presumably there is at least some distinction between taxable and non-taxable bonds. That is, just because I own some munis and am therefore forced to amortize their premiums shouldn't mean that I have to amortize premiums of my taxable bonds, right? Though given how complex the amortization rules have become with different yields for taxables and non-taxables nothing would surprise me...

Dan Lanciani ddl@danlan.*com

Dan Lanciani ddl@danlan.*com