Can I use a different cost basis method than my brokerage for sale of a mutual fund?

[fanfare]

@AP44 

Sorry for the prolongation of the thread, since I didn't interpret your question correctly and didn't know these nuances yet you already do know it.

If you file with a corrected basis, your chances of being audited are pretty slim, in my opinion.

IRS has little resources and the Congress seems to want to keep it that way.

[AP44]

@fanfare No prob, and thanks for sticking through the thread with me 🙂

Good to know that there's little chance of audit. The second thing I'm doing is trying to get my broker to put in writing that he had also understood (before the sale had settled) that the most recent lots would be sold at their true basis. Also, Schwab's Cost Basis Change form says in bold:

"Prior sales in your account will not be retroactively processed under the new cost basis method indicated on this form."

The word "sales" certainly is suggestive that prior purchases will be retroactively affected.

Hopefully these two bits of evidence together are enough to satisfy the IRS should they come a-knockin.

[jcookson1]

Any update on this? I’m in a very similar situation this year where Fidelity is reporting average cost basis which produces an extra $6800 in tax liability. They won’t change their cost basis methodology, but I have records and have calculated the actual cost basis. All shares were sold in one transaction. 

Were you able to successfully modify the cost basis on your tax returns?

[AP44]

It seems that the IRS doesn't give clear guidance here, but I was able to find a (highly-rated) tax accountant who says it's kosher and would go to bat for me in case of audit. Fingers crossed, I guess 😀.

[jcookson1]

Thanks, this is very helpful. We’ll find a tax advisor to discuss our options. Why actual cost basis isn’t the default for mutual funds is beyond me. It’s not any more difficult to calculate. 

[fanfare]

""Why actual cost basis isn’t the default for mutual funds is beyond me"

It is the default.

You have to opt in to Average Cost method.

@AP44 

[jcookson1]

Absolutely not true for mutual funds. Fidelity (and many other brokers) default to average cost basis for mutual funds, and only use actual cost basis for stock investments. I found this out the hard way…

[rjs]

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@fanfare wrote:

""Why actual cost basis isn’t the default for mutual funds is beyond me"

It is the default.

You have to opt in to Average Cost method.

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Actual cost is the general IRS default for all securities. The brokerage may have a different default. As jcookson1 said, many brokers use average cost by default for mutual funds.