When do you have to specify to the IRS which method you're using to calculate cost basis for stocks and mutual funds, what exactly do you need to say, and where on the return does it go?
Are there "default" methods where you don't need to specify? FIFO for stocks, average cost basis for mutual funds? My practice of always using these respective methods and never reporting (nor changing) which one I've used seems to have worked without a hitch so far.
JP
You don't specify it explicitly.
For stocks, you don't have a choice in how to calculate cost basis, it's always the cost of the shares you sold. With mutual funds you have the option of average cost basis.
If you don't specify to the broker the shares you're selling, the default is that you're selling FIFO. Identifying the shares is different from choosing the cost basis method.
Once you've started using average cost basis method for a particular mutual fund, you have to keep using it for that fund (until you completely dispose of your holdings, I expect).
But they will be by 2012. It was in the bailout bill that passes last October.
The IRS instructions for Schedule D (page D-7) say "If you are reporting an average basis, include 'AVGB' in column (a) of Schedule D." Column (a) is the description.
Bob Sandler
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